Oil Prices Rise on Expected OPEC+ Output Cut
Oil prices increased on Monday ahead of the much-expected OPEC+ meeting over expectations that the group will continue its current output cuts through January.
Brent price hits $81.28 per barrel, up 0.83% from the closing price of $80.61 a barrel in the previous trading session on Friday.
Though the oil market managed to rally by more than 4% on Friday, taking ICE Brent back above US$80/bbl, the market still registered its fourth consecutive week of declines following signs that the market is not as tight as initially expected, ING commodities strategist said in a note.
The American benchmark, West Texas Intermediate (WTI), traded at the same time at $76.75 per barrel, up 0.93% from Friday’s close of $76.04 per barrel.
Both benchmarks have been on a downtrend last week over diminishing concerns that the conflict between Israel and Palestine will disrupt oil trading routes.
However, prices rebounded on the first day of the week as investors priced in the scenario that OPEC’s swing producer Saudi Arabia will extend its 1 million barrels per day (bpd) of production cut for at least another month.
Producers of the 23-member OPEC+ group had been reducing output ‘to ensure market stability’ amid weak demand signs in China, but recent data showed that the economy of the world’s largest oil importer, China, recovered from the wounds of the COVID pandemic.
OPEC also forecasted in its monthly oil report that demand in 2024 will increase as solid global economic growth amid continued improvements in China is expected to support oil consumption.
The ministers of OPEC+ group will convene on Sunday to decide their next production pact and experts say any decision would be enough to lift prices up in the short term.
While the oil market managed to rally by more than 4% on Friday, taking ICE Brent back above US$80/bbl, the market still registered its fourth consecutive week of declines following signs that the market is not as tight as initially expected, ING commodities strategist said in a note.
However, the recent weakness has increased noise over what OPEC+ will decide to do at its meeting on 26 November. Saudi Arabia and Russia will roll over their additional voluntary cuts into early 2024”, ING said.
However, what is less clear is whether the broader OPEC+ group will make further cuts. There were reports on Friday that the group could consider a cut of up to 1MMbbls/d, ING said in its Monday note.
Oil market analysts believe that a deeper group cut combined with the Saudis and Russians rolling over their voluntary cut would be more than enough to ensure that the surplus currently expected in 1Q24 disappears.
The latest positioning data shows that speculators continue to reduce their net long in oil.
Speculators sold 5,053 lots in ICE Brent over the last reporting week to leave them with a net long of 170,985 lots as of last Tuesday.
Commodities strategist said speculators will likely be a little concerned about leaving too much risk on the table ahead of next weekend’s OPEC+ meeting.
“Therefore, there is the potential for some further short-covering this week”.
The latest data from Baker Hughes shows that the US oil rig count increased by 6 over the last week to 500, which is the largest increase since February.
However, the rig count is still down close to 20% YTD. The slowdown in drilling activity this year suggests that US supply growth in 2024 will be much more modest than the roughly 1MMbbls/d supply growth estimated for this year.
Russia announced on Friday that it lifted its export ban on gasoline with the domestic market a lot more comfortable now. The export ban had been in place since 21 September, and it originally included diesel as well. Russia is a fairly small exporter of diesel, exporting less than 5m tonnes last year. Futureview US Dollar Fund Return Hits 7.42%
