Oil futures were steady to slightly firmer on Thursday despite OPEC and its allies planning one of the deepest output cuts this decade to prevent oversupply.
The deal would apply for an unexpectedly short period of the first three months of 2020, without an extension that the markets had been eyeing, and would exclude condensates from the cuts for the non-OPEC allies, like Russia.
Brent crude futures settled at $63.39 a barrel, up 39 cents or 0.6%. West Texas Intermediate (WTI) crude futures ended at $58.43 a barrel, unchanged from the previous settlement, after hitting the highest since late September earlier in the session.
A ministerial panel of key members of the Organization of the Petroleum Exporting Countries and allied producers led by Russia, known as OPEC+, recommended deepening output cuts by 500,000 barrels per day (bpd) in the first quarter of 2020, according to Russian Energy Minister Alexander Novak.
OPEC+ has agreed to voluntary supply cuts since 2017 to counter booming output from United States, now the world’s top producer. Existing supply curbs of 1.2 million bpd are set to expire in March. A cut of 1.7 million bpd would amount to 1.7% of global supply.
The OPEC ministers gathered on Thursday in Vienna and OPEC+ will meet again on Friday to vote on the deal.
“We’ve been on pins and needles waiting to see what the actual announcement is going to be, so that’s why we’ve been up and down,” said Phil Flynn, analyst at Price Futures Group in Chicago.
U.S. crude futures reversed an early rise and Brent pared gains after the ministerial panel also recommended excluding data on condensate from oil output figures for Russian and other non-OPEC members.
Condensate is a high-value light type of crude oil extracted as a by-product of gas production.
For Russia, it means that some 760,000 bpd of condensate would be excluded from calculations, meaning Russian baseline production used for cuts would decline to around 10.66 million bpd from 11.42 million bpd.
“That is a way for Russia to compete with the U.S. shale mainstay,” said John Kilduff, a partner at Again Capital Management in New York. “So what looked like an aggressive cut may end up being middling when we do the final analysis.”
OPEC’s effort to deepen cuts and increase member compliance was also driven by the group’s de facto leader Saudi Arabia’s hopes to see higher oil prices to support its budget and initial public offering (IPO) of state-owned oil behemoth Saudi Aramco.
Aramco’s IPO will be the biggest in history, but will still fall significantly short of the towering $2 trillion valuation long sought by Crown Prince Mohammed bin Salman.
“It is becoming increasingly apparent that the Saudis are willing to incur some additional short-term pain at least until the Saudi Aramco IPO acquires a greater definition and a favourable reception,” Jim Ritterbusch, president of trading advisory firm Ritterbusch and Associates, said in a note.