As OPEC's production-setting meeting looms, oil prices began this week with a modest rise, but there's no guarantee that oil will be buoyed, just as there's no way to predict whether the cartel will cut production or keep it at current levels.
On Monday, the price of benchmark Brent crude from the North Sea inched up by 1.54 percent to $45.56 per barrel for shipments loading in January. At the same time, West Texas Intermediate (WTI) crude was up 1.37 percent to $42.29 per barrel for deliveries in December.
Related: Energy Markets On Edge As OPEC Meeting Nears
On Tuesday, Brent futures rose to $45.03 per barrel by mid-morning GMT, and WTI had risen to $42.14 per barrel. This modest start for December contrasted with a loss of about 10 percent for both Brent and WTI in November.
One analyst says the prices for both are essentially flat as traders await the week's news not only from OPEC, but also from the European Central Bank, which will announce whether it will further ease stimulate the economy in the euro zone, and the U.S. Labor Department's monthly report on jobs, which could affect whether the Federal Reserve will raise interest rates in mid-December.
"Crude is entering a third week of trading almost unchanged on a weekly basis," Olivier Jakob, an analyst at the research concern Petromatrix, told Reuters. "Towards the end of the week, we have the ECB, the [U.S. jobs] number and the OPEC meeting, so that is going to really set the outlook for the first quarter [of 2016]."
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Of course when it comes to the price of oil, the big news this week will be the OPEC meeting on Friday at its Vienna headquarters. In November 2014, the 12-member group, led by Saudi Arabia, voted unanimously to maintain oil production at 30 million barrels per day in an effort to regain market share from drillers in the United States, who had been relying on hydraulic fracturing to extract oil.
The practice, also called fracking, created a glut in the global oil market and depressed oil prices. But fracking is more expensive than conventional drilling, and oil must sell at $60 per barrel to make it profitable. The OPEC strategy appears to have worked so far, as U.S. production has dropped over the past year, and many observers believe the cartel will maintain its production ceiling.
Some observers, however, say the strategy, which has depressed prices even further, may end up costing OPEC members too much. Some even have expressed fears that the price of a barrel of oil could plunge to $20. And if prices rise to and even beyond the $60 threshold, U.S. production will resume and the cycle will begin all over again.
Related: Oil Gains Ahead Of OPEC Meeting, Dollar Caps Growth Potential
"If you look at Saudi Arabia, it has seen its revenues halved and has not made any significant market share gains," Jakob said in a separate interview with The Wall Street Journal. "The only real success has been to stall the U.S. shale oil sector's growth."
In fact, some analysts say there's evidence that, far from succeeding, Saudi Arabia's strategy could already be showing that it is a failure.
"Saudi Arabia's position so far has been to hold production steady in the face of declining prices," said a report by ANZ Research, an arm of the Australia and New Zealand Banking Group. "We don't see this changing, despite some recent rhetoric that OPEC's de facto leader, Saudi Arabia, was working to stabilize prices."
By Andy Tully of Oilprice.com
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Andy Tully is a veteran news reporter who is now the news editor for Oilprice.com More