After weakness on Tuesday, sentiment surrounding crude has reversed completely with positive rhetoric and reports that OPEC is close to agreement triggering a surge in oil futures of around 8.0%.
Oil futures were unable to make any headway during the US session on Tuesday with a generally pessimistic stance towards the prospects for a credible OPEC deal sapping support.
WTI remained under pressures and January futures declined to lows around the $45.20 area. Consolidation dominated later in the US session with a gradual move higher in Asia on Wednesday with crude gaining some support from a weaker dollar.
The API inventories data did not have a major impact with a headline draw of 0.72mn barrels offset by a strong build in inventories for both gasoline and distillates.
Prices moved sharply higher from early in the European session on Wednesday as the tone of rhetoric surrounding the OPEC meeting improved sharply.
There were initial comments from Iran that OPEC would reach an agreement and, that while Iran would not freeze output, they would come to another arrangement. Other member confirmed that progress had been made during the breakfast meeting, which helped underpin confidence.
Shortly afterwards, there were comments from the Iraqi oil minister that there had been an OPEC agreement to cut output. There were also reported comments that Saudi Arabia considered an Iranian output at pre-sanction levels was acceptable.
OPEC appears to be proposing a total production cut of 1.4mn bpd with OPEC committed to a reduction of 800,000 bpd with the balance of 600,000 made up of a cut from non-OPEC producers. Under this plan, Iran would reportedly be given a 3.9mn bpd output quota.
The rhetoric overall triggered a surge in oil prices with January WTI futures initially strengthening sharply to the $47.50 area with gains then extending to above $48.50 ahead of the US open.
The OPEC meeting will still need to be monitored very closely for confirmation that a deal has been reached and there will be a risk that initial optimism will fade, while any last-minute collapse would trigger a slump in prices. The Russian stance will also be important give that they will be the dominant player in any cutting of non-OPEC production.
The latest Energy Information Administration (EIA) inventories data will be monitored later in the session, although the overall impact is likely to be limited with attention focussed on the OPEC meeting.