Oil pares gains as OPEC decides to stick to its output plan

(Bloomberg) --Oil pared gains after OPEC+ decided to maintain its current pace of supply increases despite President Joe Biden’s calls for more output, prompting speculation that the U.S. may tap its strategic reserves.

Futures in New York earlier rallied as much as 3.2%. After a brief meeting on Thursday, OPEC and its allies approved a 400,000 barrel-a-day production hike for December, a delegate said. That’s a pace that major consumers say is too slow to sustain the post-Covid economic recovery.

“It makes an SPR release look like a near-certainty I would say,” said Emily Ashford, an analyst at Standard Chartered. Focus is turning to the group’s press conference, which should provide more details on the output increase, she said.

Meanwhile, inventories at Cushing, Oklahoma, the delivery point for benchmark U.S. crude futures, rose by about 1.04 million barrels in the week through Nov. 2, according to traders citing data from Wood Mackenzie. That’s a stark reversal after weeks of supply declines.

Oil recently rallied to the highest since 2014 as an economic rebound from the pandemic combined with a supply crunch across the energy industry to drive up demand for crude. U.S. President Joe Biden has led calls from major consumers for higher OPEC+ production, but Saudi Arabia and others in the alliance have pushed back, saying coronavirus outbreaks continue to threaten the market.

What happens in the coming weeks will have major implications for a global economy that has been battered by high energy prices, and for the domestic political agenda of a U.S. president whose popularity is sinking as inflation rises. The showdown also puts further strain on America’s increasingly fragile relationship with its strongest Middle Eastern ally -- Saudi Arabia.

“If you released 60 million barrels from the SPR now you’re looking at like maybe $3 a downside,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “What’s starting to get priced in is the fact that the Biden administration painted themselves a little bit in a corner where they have to do something in response to OPEC not doing anything.”

Prices:

•          West Texas Intermediate for December delivery added 38 cents to $81.24 a barrel at 10:53 a.m. in New York
•          Brent for January settlement gained 62 cents to $82.61 a barrel

Other nations, such as Saudi Arabia and the United Arab Emirates, have sufficient capacity to pick up the slack, but Thursday’s meeting didn’t detail any mechanism for them to do so, delegates said, asking not to be named because the talks were private.

Other market news:

•          Iran said its Islamic Revolutionary Guard Corps seized an oil tanker in the Gulf of Oman last month as part of an operation to foil a U.S. attempt to take control of a shipment of Iranian crude.
•          Kuwait will nominate Haitham Al-Ghais to be OPEC’s next secretary-general, according to a person familiar with the matte
•          Natural gas prices are so high that Norwegian energy giant Equinor ASA is bolstering output of the fuel with the addition of very light petroleum products.