OPEC Should Consider Raising Production to Prevent Market Being Flooded with Fracked Oil, Says Analyst

West Texas Intermediate on Wednesday peaked early in the session at $58.09 per barrel, the highest since July 2015, due to concerns over reduced supplies resulting from the temporary closure of the Keystone pipeline, as well as the American Petroleum Institute reporting a 6.4 million barrel crude drawdown for last week.

Brent rose 55 cents to $63.12 per barrel after trading as high as $63.39.

An oil spill in South Dakota forced the closure of Keystone, and TransCanada Corp said it will cut deliveries by at least 85 percent on its 590,000 barrel per day (bpd) crude conveyance through the pipeline to the end of November.

But while fears of a market tightening resulted in Wednesday's price gains, observers remain firmly focused on the November 30 meeting of the Organization of the Petroleum Exporting Countries (OPEC) as a true driver of market conditions both in the immediate future and farther down the road.

Dutch bank ING said on Wednesday, "There is growing consensus that OPEC will extend their production cut deal at the end of the month; this confidence along with the current geopolitical environment has kept Brent trading firmly above $60 per barrel.

"However, an outcome at the OPEC meeting which falls short of market expectations will likely lead to a selloff, and given the large speculative long in Brent, this could be fairly severe."

J.P. Morgan in its 2018 commodities outlook noted that "oil markets in 2018 will be balanced on the back of extended ... production cuts," but added that without the extension markets would be in surplus.

But the all-out hope in some analytical circles that OPEC will extend its cuts puzzles some experts who have considered the possible consequences arising from more cutbacks.

Philip Verleger, president and founder of PK Verleger, told Bloomberg television that if he were asked to advise OPEC, "I would first tell them that the center of the world oil market has moved to Houston; second, they need to keep prices probably below $60 per barrel based on the most recent analyses...that $65 per barrel leads to a very substantial increase in production from the U.S. by 2021 or 2022 - and that they're going to face this problem continually.

"So rolling the agreement over, which I think is in the cards now, at least to this time next year, is probably okay [but] they might actually want to increase production and let prices go down a little bit, to slow the advance of non-OPEC production."

But if a prediction made earlier this week by Bill Baruch, president of Blue Line Futures, proves true, OPEC won't need to do anything but extend the cutbacks in order to keep the U.S. at bay: that's because Baruch believes the cutback extension has already been priced into the market, so "I don't think we'll get any bullish surprises" from traders.