Oil futures saw a slight increase on Monday as market expectations grew regarding OPEC+ potentially implementing deeper supply cuts. This comes amid concerns over falling oil prices, which have declined for four consecutive weeks due to easing worries about supply disruption in the Middle East caused by the Israel-Hamas conflict.
Brent crude futures rose by 0.7% to $81.18 a barrel, while U.S. West Texas Intermediate crude climbed 0.7% to $76.40 a barrel. The December contract is set to expire later today, with the more active January futures also experiencing a 0.7% increase at $76.59 a barrel. On Friday, both contracts closed 4% higher after three OPEC+ sources revealed that the producer group is considering additional oil supply cuts in their meeting on November 26.
Oil prices have fallen by nearly 20% since late September, and the prompt inter-month spreads for Brent and WTI entered contango territory last week. In a contango market, prompt prices are lower than those in future months, indicating ample supply.
Goldman Sachs analysts have suggested that deeper cuts should not be dismissed, given the decline in speculative positioning, timespreads, and higher-than-expected inventories. While their baseline forecast is for the existing production cuts to remain in place until 2024, they anticipate that Saudi Arabia’s unilateral cut of 1 million barrels per day will be extended through the second quarter of next year.
Analyst Tony Sycamore predicts that WTI prices could reach $80 a barrel if OPEC+ announces deeper cuts. However, a drop below $72 might prompt the Biden administration to refill the U.S. Strategic Petroleum Reserve.
Investors are also paying attention to possible disruptions in Russian crude oil trade due to recent U.S. sanctions imposed on three ships that have transported Sokol crude to India. Additionally, Moscow’s decision to lift the ban on gasoline exports could contribute to global supplies of the motor fuel.
In the Middle East, progress is being made toward a deal to free some hostages in the Gaza enclave, despite ongoing conflict. Furthermore, U.S. energy firms added oil and gas rigs for the first time in three weeks, indicating potential future output growth.
1. What is OPEC+?
OPEC+ is a group consisting of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC allies, including Russia. They work together to coordinate oil production and supply policies.
2. What is a contango market?
A contango market refers to a situation where near-term or prompt prices are lower than prices for future delivery. It often indicates an oversupply of oil in the market.
3. What is the U.S. Strategic Petroleum Reserve?
The U.S. Strategic Petroleum Reserve (SPR) is an emergency stockpile of crude oil maintained by the U.S. government. It is intended to protect against potential disruptions in oil supply and maintain stability in energy markets.