Picture: 123RF/PAVEL IGNATOV
Picture: 123RF/PAVEL IGNATOV

London — Oil prices steadied on Friday and were set for weekly gains ahead of a meeting of oil cartel Opec and its allies later in the day, which is expected to formally agree to more output cuts in early 2020.

Opec and allies, including Russia, known as Opec+, agreed on Thursday to more output cuts to avert oversupply as economic growth stagnates amid the US-China trade war. But Opec stopped short of pledging action beyond March 2020 and analysts have questioned the impact of the latest curbs.

Brent futures were down 3c at $63.36 by 9.50am GMT but are set to rise 1.5% on the week. West Texas Intermediate (WTI) oil futures fell 9c to $58.34 a barrel. They are set to rise nearly 6% on the week.

The cuts in 2020 will expand the existing agreement by an extra 500,000 barrels per day (bpd) reduction in the first quarter, through tighter compliance and some adjustments. Opec’s current agreement is a supply cut of 1.2-million bpd and the increased amount represents about 1.7% of global oil output.

“If we were to have an outcome of an extension of cuts with only the official quota of the Opec+ group being reviewed lower [the 500,000 bpd], rather than actual production, then the change in supply policy would be cosmetic (given below target production in some countries, notably Saudi Arabia and Angola),” said Harry Tchilinguirian, global oil strategist at BNP Paribas.

Opec is likely to shoulder 340,000 bpd in fresh cuts and non-Opec producers an extra 160,000 bpd, one source said on Friday.

Any price gains from the Opec+ output cut are likely to benefit US producers not party to any supply-curbing agreement. US drillers have been breaking production records even as they cut the number of oil rigs in operation, filling gaps in global supplies.

“North American shale supply will continue growing even in an environment with lower oil prices,” Rystad Energy said in a note.

Higher oil prices are also supporting the initial public offering (IPO) of Saudi Arabia’s state-owned oil company Saudi Aramco, which priced its shares on Thursday at the top of an indicated range.

The sale was the world’s biggest IPO, beating Alibaba Group Holdings’ $25bn listing in 2014, but fell short of a $2-trillion valuation for Aramco sought by Saudi Crown Prince Mohammed bin Salman.

Foreign investors stayed away and the sale was restricted to Saudi individuals and regional investors.

Reuters