Friday's Crude Gains Capped by Report OPEC May Hike Output After All

OPEC may decide after all to increase output on Sunday. File Image / Pixabay

A surprising disclosure - albeit from an anonymous source - that the Organization of the Petroleum Exporting Countries (OPEC) may decide after all to increase output on Sunday when it meets in Algeria pared crude gains on Friday.

After rising as high as $80.12, Brent on Friday fell sharply after the disclosure from Reuters and traded up 11 cents at $78.81; West Texas Intermediate settled up 46 cents at $70.78 per barrel after climbing to $71.80.

To what extent the anonymous source can be trusted is unclear, but the individual claimed that OPEC and non member producers led by Russia are discussing a potential increase of 500,000 barrels per day (bpd) - in stark contrast to earlier suggestions from OPEC members as well as analytical thought that it was unlikely the Algeria meeting would result in any increase.

However, two things are worth noting: the disclosure was made a day after U.S. president Donald Trump once more commandeered the Twitter realm to vent his frustration about high oil prices and demand that OPEC do something about it.

Second, a rise of 500,000 bpd isn't substantial in the grand scheme of things, which prompted John Kilduff, founding partner at Again Capital, to remark, "The 500,000 barrels is sort of a clever way for the Saudis to placate Trump too....it's not that big of a number: it shouldn't really sink prices materially, but it does throw the president a bone."

As for what will happen on Sunday, Kilduff said, "Right now, the market is decently supplied, and so [OPEC members] are going to play with fire like they always do; whatever comment they make will be bullish and we'll go higher in the short term."

Robert McNally, president and founder of Rapidan Energy Group, noted that Saudi Arabia faces a tightrope walk between appeasing Trump and keeping the kingdom's objective of creating a permanent alliance of OPEC and non members, in order to manage global stocks - something that is said could be ratified as early as this Christmas.

McNally said, "The Saudis do want to have as amicable a discussion as possible, and they want to prepare for the launch of this organization in December; that argues against rubbing new supply in Iran's face.

"They have a balancing act to strike."

Ironically, Trump's ire may have been triggered by the kind of misleading reporting that the brash billionaire routinely accuses the media of perpetrating, to wit: recent headlines stating that the Saudis are "comfortable" with crude prices above $80 per barrel.

McNally said, "I don't think the Saudis are at all comfortable with Brent above $80 because that gets president Trump on Twitter."

The media's provocative headlines regarding the Saudis' position on oil prices have been challenged by several individuals who have studied the situation, including Stuart Wallace, a reporter for Bloomberg, who earlier this week concluded that "maybe there's very little they can do to stop [oil] from popping over $80; that doesn't mean they like it, they're aware that this is in the danger zone, but it also means they're not going to panic every time it gets to $80."