Oil prices recover as OPEC, non-OPEC states close to supply cut extension

Oil prices fell to five-month lows on Friday

In trading on Friday, oil prices rebounded from a five per cent loss in the previous session after Saudi Arabia said Russia is ready to agree to an extension of the OPEC supply cut pact which could help reduce the global oil supply glut.

Reuters reports that traders said the technically oversold condition of the oil complex, which slumped almost 20 per cent from recent highs last month, was a factor in restricting further selling.

Brent futures were up $1.20 to $49.59/barrel by 11:02 a.m. EDT and US WTI crude was up $1.09 to $46.61/barrel.

Despite the gains, oil prices are on track to fall for a third straight week, the longest losing streak since November.

Brent and WIT futures are down about 17 per cent so far this year and are trading near levels last seen before the joint deal to cut output was announced.

After reaching five-month lows on Thursday, both contracts continued to fall overnight, with WTI dropping to $43.76, the lowest since Nov. 15.  Brent dropped to $46.64/barrel, its lowest price since Nov. 30.

The drop in oil prices ended when Saudi Arabia’s OPEC Governor Adeeb Al-Aama told Reuters that OPEC and non-OPEC nations were near to an agreement that would see the OPEC supply cut pact extended to the end of the year.

“Based on today’s data, there’s a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet,” the Saudi official said.

OPEC sources told Reuters on Thursday that the OPEC cuts are likely to be extended, but not increased beyond the 1.8 million b/d agreed upon.

Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said “The energy complex is slowly succumbing to an opinion that this year’s OPEC production cuts have been ineffective.”

“We feel that the (OPEC) cartel has come to a fork in the road in which the current agreement will be abandoned or steps will need to be taken to double down on current efforts by increasing production curtailments,” Ritterbusch said.

On Thursday, Brent traded volumes reached a record high of nearly 542,000 contracts, which may mean hedge funds had accelerated reductions to their long positions.

According to a Reuters source, Pierre Andurand, who runs one of the biggest hedge funds that specializes in oil, liquidated his fund’s last long positions in oil last week and is currently running a very reduced risk.

“It is now-or-never for oil bulls,” said U.S. commodity analysis firm The Schork Report. “They either put up a defense here or risk further emboldening the bears for a run at the $40 threshold (for WTI).”

Traders are also pointing to increased US crude output, up more than 10 per cent since mid-2016 to 9.3 million b/d and almost matching output from Russia and Saudi Arabia.

Baker Hughes will release its weekly rig count data at about 1 p.m. Friday.