Speculation About OPEC Summit Outcome Causes 4% Surge in Oil Prices

But it's still unclear whether the cartel will deepen its output cuts: File Image/PixaBay

Although the tone and tenor of news in the crude market hasn't changed in the past few weeks, traders on Wednesday chose to interpret it in a positive light - which is why the long awaited meeting of the Organization of the Petroleum Exporting Countries (OPEC) scheduled for later this week caused oil prices to surge over 3 percent.

The expectation that the cartel will extend its production cuts and thus presumably trigger a better global supply and demand balance resulted in Brent ending Wednesday's session up $2.18, or 3.6 percent, at $63 per barrel; West Texas Intermediate settled up $2.33, or 4.2 percent, at $58.43.

Crude was also supported by news that seems to recur almost weekly: according to the Energy Information Administration, U.S. crude stocks fell by 4.9 million barrels in the week to November 29, compared to analytical expectations of a 1.7 million barrel decrease.

Still up in the air, though, is the question of whether OPEC will also deepen its cuts when it convenes in Vienna on Thursday: Thamer Ghadhban, oil minister for Iraq, said that "a deeper cut is being preferred by a number of key members......We have to give a positive signal to the market and to me at least we should roll over the present agreement."

Ghadhban said new cuts could be expanded to 1.6 million barrels per day (bpd), and OPEC sources claim Saudi Arabia - which needs higher oil prices to boost the value of its IPO of state-owned Aramco -  is urging Iraq and Nigeria to improve their compliance with quotas, which could provide an additional reduction of up to 400,000 bpd.

Helima Croft, head of global commodities strategy for RBC Capital Markets, pointed out that the problem with Ghandhban making these statements was that "It has set market expectations: now, if they come out with just an extended cut, and not deeper, and just honour the rolling agreement to go to March, that's a bearish outcome.

"He really did upend everything."

For his part, Khaled al-Fadhel, oil minister for Kuwait, told media that an oil price of $60-$70 per barrel is an appropriate price for producers and consumers.

Contributing to the vaguely optimistic tine was U.S. president Donald Trump, who said on Wednesday that trade talks with China were going "very well."

All of this caused Edward Moya, a senior market analyst at OANDA, to remark, "While we are starting to see signs of life in the global economic recovery, slowing demand could easily warrant an OPEC surprise this week."