Crude Stores Fall
Crude prices rallied strongly this week. The latest report from the Energy Information Administration revealed a large drawdown in US crude stores.
The EIA report showed that in the week ending November 29th, US crude stocks were lower by 4.9 million barrels.
This drawdown was far greater than the 1.73 million barrel decline the market was looking for. This comes just a day after the API reported a similar drawdown level of 4.5 million barrels.
The report was not totally bullish, however, with gasoline inventories seen higher by 3.4 million barrels.
This was higher than the 1.8 million barrel increase forecasted. Distillate stockpiles, which include diesel and heating oil, were also higher by 3.1 million barrels over the week.
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This was again higher than the 1.1 million barrel increase the market was looking for.
OPEC In Focus
While the data certainly helped lift oil prices further, crude prices were already firmly higher on the week as traders look to position ahead of the December 5th OPEC meeting. The meeting, taking place in Vienna, has drawn a lot of attention over recent weeks.
This is due to the anticipation that OPEC will adjust its production cuts. The cuts, which were extended in June to run until the end of Q1 2020 are now expected to be extended further.
However, the main focus of the meeting will be whether OPEC decides to increase the level of the cuts.
Saudi Arabia Pushing For Deeper Cuts
On Tuesday, OPEC member Iraq (the second-biggest producer in the cartel) said that Saudi Arabia (the group’s de-facto leader) was pushing to increase the level of supply cuts from 1.2 million barrels per day to 1.6 million barrels per day.
However, while OPEC itself might agree to the deeper cuts, it is not yet clear whether the group of non-OPEC producers will be in favor of increasing the cuts.
The allied nations, led by Russia, have been taking part in the production cuts so far this year. They have recently agreed to extend them. If the group now agrees to increase the level of cuts, along with the OPEC members, this could be strongly bullish for oil prices.
Trade Deal Fears Rising
With the US/China trade talks having stalled again, the need for OPEC to make a significant change is increasing.
If a deal is not done in December and the US pushes ahead with fresh tariffs, the demand outlook for oil will worsen once again. With this in mind, the market is expecting OPEC to take strong action.
If OPEC fails to agree to a deal to increase the level of cuts and merely extends them further, this is likely to be met with disappointment by oil bulls, sending oil prices crashing.
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