Oil Prices Jump on OPEC Deal
June 22 2018 - 5:50PM
Dow Jones News
By Stephanie Yang and Neanda Salvaterra
Oil prices rallied Friday as the global oil cartel agreed to
increase production by less than some had expected, soothing fears
of an imminent wave of supply.
Light, sweet crude for August delivery gained $3.04, or 4.6%, to
$68.58 a barrel on the New York Mercantile Exchange, closing at its
highest level since May 24. Prices notched the biggest one-day gain
since November 2016. Brent, the global benchmark, increased $2.50,
or 3.4%, to $75.55.
On Friday, members of the Organization of the Petroleum
Exporting Countries agreed to boost output by about 600,000 barrels
a day, on the low end of what some analysts had projected. Analysts
also said that with growing global demand and falling supply from
countries like Venezuela, Libya and Iran, the market should be able
to absorb higher oil production.
"This is exactly the kind of trigger to send prices higher,"
says Harry Tchilinguirian, global head of commodity markets
strategy at BNP Paribas. "The market sees this increment as
something that's not going to tilt it into bearish territory."
The smaller-than-expected increase agreed upon by major oil
exporters also renewed investor optimism that the group of
producers will keep the market supported.
"There could have been much more animosity," said Kyle Cooper, a
consultant at ION Energy Group. "The market is taking that as a
sign that there continues to be cooperation."
In 2016, OPEC and external producers including Russia agreed to
curb output by 1.8 million barrels a day, in an attempt to
eliminate a global glut. Over a year into the deal, global
inventories have drained, prompting some analysts to declare an end
to the glut. Crude prices climbed to their highest levels in more
than three years earlier this year.
"There's a relatively tight supply and demand balance around the
world and that should also keep the market from just collapsing,"
Mr. Cooper said.
In the U.S., shale producers have run into obstacles with
infrastructure bottlenecks and a regional buildup of crude,
weighing on prices and production growth. Meanwhile, inventories
have fallen to the lowest level since March, according to the U.S.
Energy Information Administration.
"The U.S. is likely to grow less than anticipated, so I think
some increase is prudent," said Trip Rodgers, a portfolio manager
at Boone Pickens Capital Fund Advisors. "We don't think that we are
suddenly going to be swamped in oil, particularly given that demand
has held in very well."
Now, analysts project that geopolitical developments, including
a collapse in Venezuela's oil industry and the re-imposition of
U.S. trade sanctions on Iran, may remove additional barrels of oil
from the market and worsen a projected deficit in the second half
of this year and in 2019. Experts project that the market will lose
an additional 1.5 million barrels of oil a day by the end of this
year.
Oil services firm Baker Hughes Inc. is also set to release its
weekly data on the number of rigs drilling for oil in the U.S., a
bellwether for activity in the sector.
Still, some warn that global oil supply is plentiful, and
raising the bar on OPEC production could lead to individual members
supplying more crude than what was agreed.
"The market has no reason to stage any immediate selloff," said
Georgi Slavov, head of research at brokerage Marex Spectron.
However, "There is a lot of oil on the market I'm afraid. If this
really happens, this will clearly be negative for the market in the
medium term."
Gasoline futures also rose 2.9% to $2.0705 a gallon and diesel
futures gained 2.7% to $2.1254 a gallon.
--Sarah McFarlane, Summer Said and Benoit Faucon contributed to
this article
Write to Stephanie Yang at stephanie.yang@wsj.com and Neanda
Salvaterra at neanda.salvaterra@wsj.com
(END) Dow Jones Newswires
June 22, 2018 17:35 ET (21:35 GMT)
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