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Oil At A Crossroads

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Call it crunch time or a make-it-or-break-it moment, but as the OPEC meeting approaches in Vienna Austria on November 30th – less than two weeks away – crude’s future hangs in the proverbial balance.

The past few weeks have seen both Brent crude, the world’s benchmark for oil, and West Texas Intermediate (WTI) on a rally of sorts gaining each about $5 in value even without the political turmoil unfolding amongst the royal family in Saudi Arabia. Talk of another longer extension to OPEC’s oil production cuts aimed at draining the global glut created in late 2014, seems to have been the main motivator behind crude’s unexpected rise.

But the International Energy Agency (IEA) dampened oil’s momentum earlier this week suggesting, to the surprise of many, that global demand would begin to wane in 2018, something many pointed out was incorrect. Traditionally, the IEA’s forecasts are notoriously conservative and, as we saw over its last few outlooks, seriously underestimated oil’s apparent popularity.

Despite a poor track record on future global oil demand, it is the latest rumor that OPEC (Organization of the Petroleum Exporting Countries) may not be able to reach a consensus on an agreement to extend its cutbacks, that has seen oil drop a couple of dollars this week. According to some, Russia, which is the world’s largest producer of oil just ahead of Saudi Arabia, has not yet achieved the go-ahead from its domestic oil producers and, as such, their participation in continuing oil output cutbacks remains less than certain, at this juncture.

Looking at some of Russia’s largest producers, Rosneft and Lukoil, both appear to confirm their commitment to joining and continuing efforts to reduce the global oil overhang once crude reaches $60 a barrel. Of course, Brent oil has now managed to stay in this zone. More tellingly is their lament that surging U.S. shale production is undermining OPEC’s efforts.

Dogging prospects for an extension is the growing sense that the divergence in oil supply forecasts and demand scenarios are significant and worrisome. Why enter an agreement to cooperate with OPEC when some data suggests the global glut is far from returning to balance, despite OPEC’s rosy assessments?

Without clear and definable data pointing to a drawdown, speculative bets and the prospect of an agreement will evaporate as quickly as it rallied.

December could either see higher crude and pump prices, or an unexpected gift to drivers just in time for Christmas.

Senior Petroleum Analyst, Canada

Dan is a skilled and noted bilingual (French and English) consumer advocate specializing in energy and current affairs. Known as Canada's “Gas Guru,” he founded tomorrowsgaspricetoday.com to better help motorists anticipate the price of gasoline in advance across Canada. He has over three decades of experience in the petroleum industry, as a parliamentarian and an analyst.

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