TOKYO (REUTERS, NYTIMES) - Oil edged lower on Friday (Dec 6) as investors awaited a meeting of Opec and its allies later in the day which is expected to formally agree to more output curbs in early 2020.
Despite the new cuts, Opec stopped short of pledging action beyond March and analysts questioned the impact of the latest curbs. Brent futures were down 10 cents, or 0.2 per cent, at US$63.29 by 0730 GMT.
West Texas Intermediate oil futures fell 7 cents, or 0.1 per cent, to US$58.36 a barrel. They hit US$59.12 a barrel on Thursday, the highest since the end of September.
The Organization of the Petroleum Exporting Countries (Opec) and allies including Russia - a grouping known as Opec+ - agreed to more output cuts to avert oversupply early next year as economic growth stagnates amid the US-China trade war.
The agreement, which needs to be formally adopted later on Friday, will cut an extra 500,000 barrels per day (bpd) of production, through tighter compliance and some adjustments. The group has been withholding 1.2 million bpd and the increased amount represents about 1.7 per cent of global oil output.
The "decision seems to be more of a housekeeping move that will narrow the gap between their current target and the over-compliance we have seen from the alliance," said Edward Moya senior market analyst at OANDA.
Any price gains from the Opec+ output cut are likely to benefit American producers not party to any supply curbing agreement. American drillers have been breaking production records even as they cut the number of oil rigs in operation, filling gaps in global supplies.
"North American shale supply will continue growing even in an environment with lower oil prices," Norwegian consultancy Rystad Energy said in a note.
Once the powerhouse of the global oil market, Opec now largely reacts to trends outside its control, particularly US oil production, which has doubled to 12 million barrels a day since 2012.
Opec production cuts have done little to raise crude prices in recent years, largely because of the steady increase in US shale oil production, mainly in West Texas. US output is expected to increase more slowly in 2020, but nearly 1 million new barrels a day are expected to reach global markets from Norway, Brazil, Mexico and Guyana.
This month's Opec meeting has drawn attention because it is the first in which the newly appointed oil minister, Saudi Prince Abdulaziz bin Salman, the half brother of Crown Prince Mohammed bin Salman, was in charge of Saudi energy policy. His chief objective was to firm up oil prices to make the initial public offering of Saudi Aramco as attractive as possible.
On Thursday, Aramco set a price for its shares at a level that will raise US$25.6 billion, which is expected to make it the world's biggest IPO.
Saudi Arabia is always the key mover at Opec meetings. The kingdom, which produces 10.3 million barrels of oil a day, more than one-third of the Opec members' total, has made the lion's share of cuts in recent years and is expected to continue doing so.
Saudi Arabia and Russia have been at the heart of the 3-year alliance of oil producers known as Opec+ - which now includes 11 Opec members and 10 non-Opec nations. Russian delegates at the Opec meeting pressed for an exclusion of natural gas liquids from their cuts, potentially carving out a loophole that will allow them to pump more even while technically keeping their commitments.
Opec currently produces 29.7 million barrels a day - about 30 per cent of global output - which is 2.6 million barrels a day fewer than a year ago. A little less than half of that reduction comes from Opec agreements, with the rest of the shortfall coming from Venezuela and Iran.
Rystad Energy has estimated the global oil market will be oversupplied by 800,000 barrels a day because of the new production and slowing economic growth. Bjornar Tonhaugen, Rystad's head of oil market research, has warned that the global Brent oil benchmark, just above US$60 a barrel on Thursday, could dip into the US$40 to US$50 range "if Opec and Russia don't extend and deepen their cuts."
