Oil rebounded from the lowest price in more than six years amid speculation Saudi Arabia will propose an eventual output cut when the Organization of Petroleum Exporting Countries (Opec) meets Friday in Vienna.
Brent futures rose as much as 2.1 percent in London. The Saudi proposal for Opec to reduce production by 1 million barrels a day would require non-members including Russia and Mexico to participate, and wouldn’t take affect until at least 2016, Energy Intelligence Group reported, citing a delegate it didn’t identify.
A majority of Opec states agree on a supply cut, with the exception of Saudi Arabia and Gulf Arab nations, according to the Iranian oil ministry’s Shana news agency.
Oil prices have slumped 40 percent since Saudi Arabia led the group’s decision in November last year to maintain output and defend market share against higher-cost shale producers.
The global surplus is worsening after U.S. government data showed crude stockpiles in the world’s biggest oil consumer expanded for a 10th week, keeping inventories more than 120 million barrels above the five-year seasonal average.
“Even if the report is credible, there will be a long way to go before the market could have any reasonable assurance that an agreement was possible and that it could be adhered to,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone.
“The fact that it’s a Saudi proposal gives it a bit of extra weight because they are a credible operator in the oil market.”
Saudi Proposal
Brent for January settlement climbed as much as 88 cents to $43.37 a barrel on the London-based ICE Futures Europe exchange and was at $42.95 at 3:56 p.m. Hong Kong time. The contract slid $1.91 to $42.49 on Wednesday, the lowest close since March 2009. Total volume was about 43 percent above the 100-day average.
West Texas Intermediate for January delivery gained as much as 71 cents, or 1.8 percent, to $40.65 a barrel on the New York Mercantile Exchange. It dropped $1.91 to $39.94 on Wednesday, the lowest close since Aug. 26. Prices have decreased 24 percent this year.
OPEC’s 12 members have pumped more than their collective target of 30 million barrels a day the past 18 months, data compiled by Bloomberg showed. The Saudi proposal would also require Iran, Oman and Kazakhstan to participate, and Iraq to freeze output at current levels, or cut with the group, according to Energy Intelligence.
Opec Supply
Venezuela and Ecuador said they will seek production curbs at Friday’s meeting to bolster prices. There’s a lack of agreement on how to manage supply and stabilize the market, Shana reported, citing Mehdi Asali, a director-general at the ministry in Tehran. Iran, which advocates a group reduction, has plans to boost its own output should international sanctions be lifted early next year.
“For OPEC to cut its own quota would directly translate into a failure of OPEC strategy,” said Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co. in Seoul. “It’s unlikely to happen, especially with Iran at odds with Saudi Arabia. It’s on the verge of getting its sanctions lifted.”
U.S. crude stockpiles increased by 1.18 million barrels to 489.4 million in the week ended Nov. 27, Energy Information Administration data showed Wednesday. A median decline of 800,000 barrels was forecast in a Bloomberg survey of analysts.
