Oil Prices Steady Amid Positive Trade Talks, US Surplus Grows

Energy Investing
Oil and Gas Investing

Oil prices stabilized this week amid hopes that a trade deal between the two largest crude consumers — China and the US — was near.

Oil prices stabilized this week amid hopes that a trade deal between the two largest crude consumers — China and the US — was near.

After slipping to US$60.90 a barrel last week, Brent crude steadied in the US$63 range Tuesday (November 26), while West Texas Intermediate also recovered from last Tuesday’s (November 19) dip to sit at US$58.07 today (November 27).

An early morning attack on an oilfield in Libya could impact prices later in the week as production of 70,000 barrels a day has been impacted at the El Feel site.

A weekly status report from the Energy Information Administration noted that inventories in US reserves swelled by 1.6 million barrels despite an expected deficit. The surplus weighed on the value of both, however following a slip early Wednesday (November 27), the prices began to reclaim the weekend gains.

Next week’s Organization of the Petroleum Exporting Countries (OPEC) meeting could bring some price volatility to the sector as the oil producing collective may discuss easing production cuts imposed in 2018. The curtailment aimed at reducing output by certain member nations removed 1.2 million barrels per day from global supply helping to stabilize prices.

Despite concern that the group would lift or ease the cut, growth in output from non-OPEC countries, primarily the US, has worked to offset some of the stability the million barrel reduction fostered.

“We anticipate that OPEC+ will agree to a 3-month extension of the group’s 1.2 MMbpd supply reduction agreement, which began in January 2019 and was set to expire in the spring,” Rory Johnston, Scotiabank economist, noted in a price index summary.

“Global forecasting agencies expect a sizable supply surplus in the first half of 2020 before conditions tighten from the third quarter onward and OPEC+ is likely to maintain discipline for this final stretch.”

Saudi Arabia, the unofficial leader of the group, is also making headlines as fellow member states and neighboring countries consider helping national oil producer Saudi Aramco hit its initial public offering (IPO) target of US$25 billion.

Aramco, which is considered to be the most profitable company in the world, launched its international IPO earlier this month. Subsequently, the IPO was scaled back to the regional level and has yet to draw in the anchor investor needed.

Earlier this year, Saudi Arabia’s oil output was cut in half following drone strikes at Aramco facilities.

The airborne assault on the world’s second largest producer removed 5 percent of global supply from the market — 5.7 million barrels a day — and sent prices for both Brent and WTI higher over fears of a shortage.

Saudi Arabia’s relationship to the embattled Persian Gulf trade route may also be impacting the IPO efforts.

As of Thursday (November 21), the offering had raised US$18.47 billion in interest from retail and institutional investors.

The 1.5 percent stake that is up for grabs values the company in the US$1.6 trillion range. If successful, the US$25.6 billion IPO would be the largest of its kind in the world.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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