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Futures Movers: Oil falls to lowest prices since early October as OPEC+ decides to keep current production increases in place

Oil futures ended a volatile Thursday trading session at the lowest prices since early October after the Organization of the Petroleum Exporting Countries and its allies resisted pressure from the Biden administration and decided to keep their crude production increases in place.

The group of producers, known as OPEC+, reaffirmed its previous decision on production levels at a meeting Thursday held by videoconference, and said it will raise the monthly overall production by 400,000 barrels per day in December.

The decision to hold steady to previous production plans was “no surprise to the markets,” said Andy Brogan, global oil and gas leader at professional services network EY. “The group’s strategy, as demand has recovered from the pandemic, has been quite successful and there was no compelling reason for them to change course.”

Read: U.S. oil producers pose ’emerging threat’ after OPEC+ defies call to speed production increases

West Texas Intermediate crude for December delivery
CL00,
-2.54%

CLZ21,
-2.54%

declined by $2.05, or 2.5%, to settle at $78.81 a barrel on the New York Mercantile Exchange. Front-month contract prices marked their lowest finish since Oct. 7, according to Dow Jones Market Data.

While oil had initially rallied after the announcement, the “affirmation of expectations” met with short-term profit-taking, said Rob Haworth, senior vice president at U.S. Bank Wealth Management. “A key question is when or if U.S. shale producers may alter strategies to expand output,” he said.

January Brent crude
BRN00,
-0.14%

BRNF22,
-0.14%
,
the global benchmark, also fell $1.45, or 1.8%, to settle at $80.54 a barrel on ICE Futures Europe, the lowest since Oct. 1.

“There are at least 12 reasons why OPEC+ decided to stick to its plan despite pressure from the U.S., India, and Japan,” said Anas Alhajji, an independent energy expert, who’s also managing partner at Energy Outlook Advisors LLC.

“The fact that U.S. crude oil inventories have risen by about 20 [million barrels] in recent weeks, while U.S. crude inputs into refineries are about 1 [million barrels per day] less that they were in 2018 indicates that the gasoline problem in the U.S. will not be solved by additional crude oil production from OPEC,” he told MarketWatch.

At a meeting in early October, OPEC+ kept the agreement reached in July to gradually raise monthly oil production by 400,000 barrels a day from August. The goal of the deal is to eventually phase out the remaining production cuts put in place last year in response to the pandemic. The October decision included a 400,000 barrels-per-day increase in November.

But the upside for oil prices could be limited by the prospect that the U.S. and other consumers could tap strategic oil reserves, analysts said.

“There is speculation that major oil consumer nations will open their strategic petroleum reserves if OPEC+ does not play nice on Thursday,” said Robert Yawger, executive director of energy futures at Mizuho, in a note.

The U.S. Strategic Petroleum Reserve was holding 612.5 million barrels of crude oil, according to Wednesday’s weekly Energy Information Administration report, he noted, while China has the second most crude in its reserve, with Japan and South Korea rounding out the top four. 

OPEC+ will hold its next ministerial meeting on Dec. 2.

Prices for petroleum products finished lower with December gasoline
RBZ21,
-2.01%

down by 2% to $2.293 a gallon and December heating oil
HOZ21,
-1.38%

losing nearly 1.2% to $2.407 a gallon.

“November is historically a tough time to be long in gasoline and we’ve seen many markets drop” by 12 to 20 cents a gallon at the wholesale level, Tom Kloza, global head of energy analysis at the Oil Price Information Service (OPIS), told MarketWatch.

“I don’t think we’ll see a gasoline pump price plunge, but we’ll have some down days in the mix,” he said.

The performance of oil, gasoline and diesel in the next 100 days will “depend on winter weather in the Northern Hemisphere and portions of Asia,” said Kloza.

“The explosive gains in natural gas and electricity make oil seem cheap in comparison,” but moving to $90, $100 or $120 a barrel is daunting under any circumstances, Kloza said. Still, OPIS expects “2022 to be a cheaper year than 2021.”

Natural-gas futures ended higher on Thursday, with the December contract
NGZ21,
-0.56%

up 0.8% at $5.716 per million British thermal units.

The U.S. Energy Information Administration reported on Thursday that domestic supplies of natural gas rose by 63 billion cubic feet for the week ended Oct. 29. That was below the average increase of 70 billion cubic feet forecast by analysts polled by S&P Global Platts.

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