OPEC + 1, led by Saudi Arabia and Non-OPEC Russia agreed to cut production on Friday, driving cued higher and putting a floor below, reports Phil Flynn.
Oil prices soared on Friday after OPEC, led by Saudi Arabia, engineered a 503,000-barrel-per-day production cut, bringing the total cut to 2.1 million barrels. The split called for an additional 372,000 barrel cut by OPEC as well as an additional 131,000-barrels-per-day cut by non-OPEC members— led by Russia. While crude prices this morning are filling in some of the run-ups from Friday, there is little doubt that this move should put in a floor for crude prices and even have the bears raise their oil price forecasts.
Saudi Arabia led the way. Reports say that Saudi Arabia's new production quota will fall from 10.3 million barrels-per-day down to 10.14 million barrels. Market Watch reported that the Kingdom has only produced 9.9 million barrels-per-day of late to help offset a global glut of oil. The prince insisted the Saudis will cut well below its quota and hold production at close to 9.75 million barrels in early 2020, about 400,000 barrels below its quota.
The new Saudi Energy Minister, Prince Abdulaziz bin Salman, made a point that the production cut was a good thing for the United States. He was probably worried about a President Trump tweet and said, "It’s also a good Friday for our friends in Oklahoma and Texas." In the past President Trump has scolded OPEC and Russia about production cuts but so-far the President has remained silent. Perhaps he is starting to feel the heat from U.S. oil producers that need a higher price to thrive.
Bin Salman tried to play hero by saying that, "We want to be more helpful. I think the world expects us to lead. When the market requires some stabilization, we come to the aid of the market." Here they come to save the day. Yet he has a point. President Trump touts his pro energy policies but he has not been helpful on price. In fact, in many ways it has been a very challenging year for U.S. shale producers. The Saint Louis Dispatch says that bankruptcies are rising in the oil patch, with Texas law firm Haynes and Boone counting filings by 33 producers in the first nine months of this year, up from 28 in all of 2018.
This comes as the U.S.-rig count continues to fall. Baker Hughes, according to Market Watch on Friday, reported that the number of active U.S. rigs drilling for oil fell by five to 663 this week. That followed declines in each of the last six weeks. The total active U.S. rig count, meanwhile, also fell by three to 799, according to Baker Hughes.
Natural gas has conflicted weather models, again and was down on a warming model. Andrew Weissman of EBW analytics says that there is a deep split between the American and European weather forecast models. The American model called for sustained cold weather in mid-December, while the often more-reliable European model was much warmer. Beginning Friday afternoon and continuing throughout the weekend, however, both weather models trended significantly warmer. The net result is likely to be continued downward price pressure for NYMEX natural gas, extending through Christmas.
Trade strategy may be key to ride out the crazy moves that will come with the headlines so keep in touch with our daily analysis. Makes sure you are getting my Daily Trade Levels! Read Phil’s energy report at Price Futures Group. Twitter: @energyphilflynn | Facebook: Phil Flynn
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