WTI broke the $59 mark for the first time since June 2015 on Friday as optimism for this week’s OPEC Meeting and the ongoing shutdown of the Keystone pipeline in South Dakota kept buyers in control. The weekly rig count has tempered that enthusiasm somewhat this morning setting up a critical test for prices this week.
While current prices suggest traders have already priced in an extension of the OPEC & Friends’ production cuts, a Bloomberg article notes that political tensions among the countries that tend dislike each other may shake up the cartel’s plans. While the bulls fondly remember WTI rallying from $45 to $49 on the day of last year’s November OPEC meeting, the bears will point to the November 2014 meeting when a lack of consensus among members sparked a selloff $73 to $65.
The Keystone pipeline that spilled roughly 5,000 barrels of oil due to a leak is still closed, and some estimate it could remain down for several more weeks, backing out roughly ½ million barrels/day of Canadian crude imports. That pipeline closure seems to be a key driver of the push to 2.5 year highs for WTI, and has also contributed to the prompt futures months flipping into backwardation after nearly 3 years of contango pricing.
The bullish sentiment was tempered somewhat Friday afternoon when Baker Hughes reported that 9 more oil rigs were put to work last week. Oklahoma added 6 rigs and New Mexico added 4, while Texas was down 2, and North Dakota and Colorado were unchanged.
Since spot market assessments were closed both Thursday and Friday, most regional cash prices are actually higher from where they left off Wednesday even though futures are pulling back after Friday’s rally.
While the multi-year highs in oil futures are keeping the bullish trend started back in June intact, there are signs from refined products and Brent that the rally could be topping out if their November highs aren’t broken in the next week. There would need to be a drop of more than 10% from current levels before we could say the bullish trend had been broken, but if OPEC doesn’t produce a production cut, this week may mark the start of that move.