To the surprise of many, OPEC & Friends–what’s known as OPEC+–agreed to cut production by 1.2 million barrels a day beginning in 2019. This was a bigger cut than the 1 million barrels a day that commodity markets had expected.
Oil prices and oil stocks initially soared on the news with U.S. benchmark West Texas Intermediate jumping to a session high of $54.22 a barrel and shares if U.S. producers such as Pioneer Natural Resources (PXD) ahead 2.46% in the early going.
But as the day has gone along, oil markets have gotten over much of their earlier enthusiasm. With fears of a U.S.-China trade war still dominating the market action, oil traders have decided to focus on the possibility that a slowing global economy would lead to lower demand for oil rather than on OPEC cuts. For example, by 2:30 p.m. shares of Pioneer were down to a gain of 0.38% on the session.
At 2:30 p.m. New York West Texas Intermediate was still up on the day–by 2.08%–but prices had fallen back to %52.56 a barrel. International benchmark Brent crude traded up 2.60% to $61.62 a barrel.
The consensus view this afternoon is that the OPEC cuts reduce the chance for a severe glut on the market but they aren’t enough to eliminate expected builds in global inventories in the first half of 2019. U.S. production still looks to be increasing after having soared by 2.5 million barrels a day since early 2016 to a record 11.7 million barrels a day.
U.S. drillers did reduce the number of working oil rigs in the week ended December 7 by 10 rigs, according to Baker Hughes. That was the biggest weekly decline since May 2016. But the view is that the currently working 877 rigs is more than enough to keep U.S. production climbing, especially considering the number of wells that have been drilled but have been stockpiled awaiting final completion.