Oil futures gain as oil producers ready to shore up output pact

Published: Dec 9, 2016 10:46 a.m. ET

Prices set for weekly loss with some doubts on non-OPEC support

AFP/Getty Images
Commitment from Russia is key for securing non-OPEC output deal

Oil futures headed higher Friday for a second consecutive session with some of the world’s biggest crude producers expected to hold a meeting this weekend to shore up last month’s agreement to curb production.

Prices for the week, however, were set for a loss with some traders expressing doubt over support for the deal from producers who are not members of the Organization of the Petroleum Exporting Countries.

West Texas Intermediate crude oil for January delivery CLF7, +0.98%  tacked on 60 cents, or 1.2%, to $51.44 a barrel on the New York Mercantile Exchange, adding to a 2.2% gain from Thursday. For the week, prices traded about 0.5% lower after a more than 12% jump last week.

February Brent crude LCOG7, +0.39%  gained 29 cents, or 0.5%, to $54.18 on the ICE Futures exchange in London. It also trades about 0.5% lower for the week.

The moves come as traders eagerly wait for the outcome of summit between oil-producing members and non-members of OPEC, which is scheduled to take place in Vienna on Saturday. OPEC is hoping to get other big producers to join it in cutting output, in an effort to stabilize the struggling oil market.

The group last week agreed to cut output by 1.2 million barrels a day, equivalent to about 1% of global production, starting next month. It set an output ceiling of 32.5 million barrels a day for its members. Non-OPEC members are hoped to slash output by another 600,000 barrels a day, with Russia expected to take on half of that burden.

Do lawsuits drive innovation in chemical industry?

Lawsuits on health and environmental liability are among the biggest risks affecting the chemical industry. But could they also be one of the main drivers of progress?

“If non-OPEC nations are in unison to cut production, they’ll raise prices by acting like a cartel,” said Phil Flynn, senior market analyst at Price Futures Group. “So maybe we have a new non-cartel cartel.”

But OPEC production has been running at record levels ahead of the deal’s planned implementation. It climbed to a record of 33.86 million barrels a day in November, according to a survey from S&P Global Platts released late Thursday.

And as the summit draws closer, fears are creeping in some nations outside the cartel won’t commit to limiting production. Only five of 14 non-OPEC countries have so far agreed to show up for the Saturday talks, according to Reuters. Azerbaijan, Kazakhstan, Oman, Mexico and Russia have accepted the invitation for the meeting, the report said.

“If non-OPEC countries decided to take advantage of OPEC cuts to expand their own market shares, this would seriously undermine discipline among the oil cartel members. In the short term, though, all involved will be trying to support expectations of tighter supply,” analysts at Commerzbank said.

Many analysts believe that oil prices are likely to slowly trend higher into the coming year, now that OPEC has reasserted its willingness to nudge the market with production cuts. For years, the cartel has sat on the sidelines as production from U.S. shale drillers rose, sending prices dramatically lower and bringing an end to an era of high oil prices.

The market will get its weekly update on the number of active U.S. rigs drilling for oil, a proxy for oil activity, later Friday from Baker Hughes BHI, -0.02%

Among other energy products on Friday, January gasoline RBF7, +0.06%  rose less than half a cent to $1.509 a gallon, trading more than 3% lower for the week, and January heating oil HOF7, +0.31%  was up under a penny at $1.634 a gallon, set for a weekly loss of 1.5%.

Meanwhile, natural-gas futures extended their gains from a day earlier to trade at their highest levels in about two years. U.S. government weather expectations are for below-average temperatures to continue through next week, said Daniel Holder, commodity analyst at Schneider Electric. “This extended cold spell, when compared to expectations of roughly average temperatures a month ago, is helping fuel the market higher.”

January natural gas NGF17, +1.71%  rose 6.7 cents, or 1.8%, to $3.762 per million British thermal units. It’s up over 9% for the week, set for fourth straight weekly climb.

–Dan Strumpf contributed to this report