Oil Advances to 16-Month High as Focus Shifts to Non-OPEC Cuts

(Bloomberg) -- Oil climbed to a 16-month high as OPEC invited non-members to Vienna in an effort to secure additional output cuts following last week’s surprise deal to curtail supply.

Brent crude closed at the biggest premium against U.S. futures in more than two months as the OPEC cuts were seen limiting supply in Europe. The Organization of Petroleum Exporting Countries will meet producers from outside the group in Vienna on Saturday to discuss output curbs, according to OPEC Secretary General Mohammad Barkindo. The group invited 14 non-members, which together pump about a fifth of the world’s oil, to the talks, he said.

Oil has risen more than 15 percent since OPEC agreed last week to trim output by 1.2 million barrels a day for six months starting in January, while non-member Russia pledged a cut of as much as 300,000 barrels a day. Attention is shifting to OPEC’s compliance with the pact and efforts to coax other producers to help. The deal can balance the market, but “we tend to cheat,” former Saudi Arabian Oil Minister Ali Al-Naimi said Friday at an event in Washington, D.C.

"OPEC is being taken at its word," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. "OPEC is still trying to get cooperation with non-OPEC countries, and some people believe that they will be able to wrangle up a few more barrels of cuts."

Brent for February settlement advanced 48 cents, or 0.9 percent, to $54.94 a barrel on the London-based ICE Futures Europe exchange. It was the highest close since July 2015. The global benchmark ended at a $2.11 premium to West Texas Intermediate oil for the same month, the widest since September.

Saturday Meeting

WTI for January delivery rose 11 cents to $51.79 a barrel on the New York Mercantile Exchange. Prices settled at the highest close since July 2015. Prices rose 12 percent last week. Total volume was 14 percent above the 100-day average at 2:58 p.m.

"The OPEC accord should support waterborne crudes such as Brent, more than landlocked ones such as WTI," said Thomas Finlon, director of Energy Analytics Group LLC in Wellington, Florida.

See also: Hedge funds pulling back from oil miss out on post-OPEC frenzy

OPEC has invited Russia, Mexico, Kazakhstan, Oman, Bahrain, Colombia, Congo, Egypt, Trinidad and Tobago, Turkmenistan, Azerbaijan, Uzbekistan, Bolivia and Brunei to talks in Vienna on Dec. 10, Barkindo said.

Of the largest non-OPEC countries invited to the Austrian capital, Mexico and Kazakhstan have previously signaled an unwillingness to cut output, while Oman has pledged to match the group’s production cut. 

Brazil has not yet decided on taking part in the proposed cuts by non-OPEC countries, Minister of Mines & Energy Fernando Coelho Filho said at a conference in New Delhi. Last week, the ministry said that the government doesn’t interfere in the pace of production by oil companies operating in the country.

Inventory Record

The group’s new 32.5 million barrel-a-day production target is only slightly below OPEC’s estimate for demand for its crude next year, meaning wider cooperation is needed to make a significant dent in the record stockpile surplus that has built up during three years of oversupply. 

"It’s still going to take a long time for the cuts to have a noticeable impact on surplus inventories," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. 

OPEC crude production rose to a record 34.16 million barrels a day in November with gains led by Angola, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. That’s up from a revised 33.96 million barrels a day in October.

Oil-market news:

• In the U.S., drillers added rigs for a fifth week to reach the highest level since January, data from Baker Hughes Inc. showed.
• Indian oil-demand growth may weaken as the government’s cash crackdown slows the economy, according to Ivy Global Energy Pte, FGE and Centrum Broking Ltd.
• Nigeria will maintain output at 1.9 million barrels a day, Emmanuel Ibe Kachikwu, the nation’s minister of state for petroleum, said in New Delhi.

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net. To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Jim Efstathiou Jr., Steven Frank