Brent Heads for Biggest Weekly Advance Since 2009 on OPEC Pact

File photo: Statoil/Thomas Sola

By Rakteem Katakey

(Bloomberg) — Brent crude is headed for its biggest weekly gain since 2009 after OPEC approved its first supply cut in eight years, with attention now shifting to the deal’s implementation and how producers outside the group will react to any price rally.

Futures fell 0.7 percent in London and were poised for a 13 percent weekly gain. OPEC’s three largest producers — Saudi Arabia, Iraq and Iran — overcame disagreements to reach Wednesday’s pact to reduce the group’s output by 1.2 million barrels a day, while Russia pledged a cut of as much as 300,000. The deal will accelerate the decline of global stockpiles, Secretary-General Mohammad Barkindo said in a Bloomberg TV interview Thursday.

The Organization of Petroleum Exporting Countries set a collective output target at the lower end of the range outlined two months ago in Algiers, sending oil prices above $50 a barrel and prompting predictions of a possible rally to $60 from Goldman Sachs Group Inc. and Morgan Stanley. Yet some analysts warned the surge in prices may encourage higher output from producers outside the group, including in the U.S. The last time the bloc set a collective quota, members exceeded it for 20 of the 24 months before the cap was scrapped at the end of 2015.

“The decision has removed a lot of downside risk from the market and we’ll probably sniff at $60 even this year,” said Bjarne Schieldrop, chief commodities analyst at SEB AB bank in Oslo. “The OPEC decision is bullish for first half of 2017 and bearish for the second half because higher prices will bring back U.S. oil faster to the market. There will be a shale party.”

Brent for February settlement lost 37 cents to $53.57 a barrel on the London-based ICE Futures Europe exchange as of 1:34 p.m. local time. The contract climbed 4.1 percent on Thursday, adding to Wednesday’s 9.6 percent gain. Total volume trad ed was 35 percent higher than the 100-day average. Prices are poised for the biggest weekly gain since the week ended March 20, 2009. The January contract expired on Wednesday.

Exceeding Quota

West Texas Intermediate for January delivery was down 28 cents at $50.78 a barrel on the New York Mercantile Exchange. Prices gained 3.3 percent to $51.06 a barrel on Thursday and are up 10 percent this week.

Russia’s output reduction should be spread proportionally between the country’s producers, who have said they support the move, Energy Minister Alexander Novak told reporters Thursday. State-controlled Rosneft PJSC, the country’s largest producer, is likely to bear most of the burden, according to Renaissance Capital. Russia may announce cuts for each company late next week, said Leonid Fedun, vice president for strategic development at Lukoil PJSC.

OPEC’s cuts are intended to shrink the world’s bloated oil stockpiles back to a normal level, paving the way for prices to rise to more than $60 a barrel. “Our objective has been since Algiers to stimulate the joint deal with non-OPEC and accelerate the drawdown of stocks,” Barkindo said. “Inventories have continued to weigh down on prices” and all of OPEC wants to see prices higher, he said.

Oil-market news:

Russia and Qatar are still discussing the most convenient location for talks between OPEC and non-OPEC producers, with options including Vienna, Doha and Moscow, U.A.E. Oil Minister Suhail Mazrouei said in an interview. Kazakhstan will decide on cutting production after OPEC, non-OPEC talks later this month, the nation’s Energy Ministry press service said in a statement. BP Plc approved the Mad Dog Phase 2 oil project in the U.S. Gulf of Mexico — the scene of its biggest disaster six years ago — at less than half its original cost. Harold Hamm, the billionaire oilman and energy adviser to Donald Trump, says foreign ownership of U.S. refineries is an issue the new administration needs to be concerned about.