Crude Trades Flat Despite Long Awaited Deepening of OPEC Output Cuts

by Ship & Bunker News Team
Thursday December 5, 2019

For days now, talk was that deeper output cuts from the Organization of the Petroleum Exporting Countries (OPEC) would result in a substantial uptick in crude trading - but now that deeper cuts are all but a fait accompli, trading on Thursday was flat.

Brent climbed a paltry 39 cents to settle at $63.39 per barrel, while West Texas Intermediate ended at $58.43 per barrel, unchanged from its previous settlement.

The OPEC ministers gathered on Thursday in Vienna, where a panel of key members led by Russia recommended deepening output cuts by 500,000 barrels per day (bpd) in the first quarter of 2020; the deal will be decided in a vote on Friday.

The reason for the tepid reaction in the trading community was the duration of the cut: a short period of three months without an extension that pundits had been hoping for, along with the exclusion of condensates from the cuts.

Still, those focused on longer-term effects seemed satisfied by OPEC's decision: "This should ensure a $60-$65 Brent oil price in the seasonally weak period of next year," said Gary Ross, founder of Black Gold Investors.

Also notable is that Saudi Arabia was pushing for deeper cuts in order to boost prices and correspondingly increase the value of state-owned Aramco's IPO;  and word on Thursday was that the IPO was priced at a record $8.53 per share, the top of its indicative range.

However, Aramco's $1.7 trillion valuation is below what the kingdom had initially been targeting, and Ellen Wald, president of Transversal Consulting, described the IPO's record size as a "hollow win."

As for the effectiveness of OPEC's proposed course of action on the health of the crude market overall, John Kilduff, founding partner at Again Capital, remarked, "Everyone's starting to do math, [and] between the condi [condensates] exemption and the current rate of over compliance, it's not really a new larger cut.

"It doesn't look promising to me."