Oil futures continued their upward trend on Monday, as expectations grew for OPEC+ to implement deeper supply cuts in order to stabilize prices. This comes after four weeks of declining prices, attributed to reduced concerns about disruptions in Middle East supply amid the Israel-Hamas conflict.
Brent crude futures rose by 0.7%, or 57 cents, reaching $81.18 per barrel by 0400 GMT. Meanwhile, U.S. West Texas Intermediate crude stood at $76.40 per barrel, marking a 0.7% increase of 51 cents. The front-month December contract is set to expire later today, while the more active January futures saw a gain of 0.7%, or 55 cents, at $76.59 per barrel.
Following a 4% increase in both contracts on Friday, three OPEC+ sources revealed to Reuters that the producer group, comprised of OPEC and its allies including Russia, will discuss the possibility of implementing additional oil supply cuts at their meeting on November 26.
Since late September, oil prices have dropped nearly 20%, and last week, prompt inter-month spreads for Brent and WTI entered contango, indicating ample supply as prompt prices fell below those of future months.
In a note, Goldman Sachs analysts stated that according to their statistical model of OPEC decisions, deeper cuts should not be dismissed due to declining speculative positioning, time spreads, and higher-than-expected inventories.
Goldman Sachs predicts that the existing production cuts within the group will remain fully intact in 2024. Additionally, they anticipate that Saudi Arabia’s unilateral cut of 1 million barrels per day will be extended through the second quarter of next year and gradually reversed starting in July.
IG analyst Tony Sycamore suggested that WTI prices could rise towards $80 per barrel if OPEC+ announces deeper cuts at their upcoming meeting. However, a drop below $72 per barrel may prompt the Biden administration to refill the U.S. Strategic Petroleum Reserve.
Investors are also monitoring the potential disruption in Russian crude oil trade following the imposition of sanctions by Washington on three ships that have transported Sokol crude to India. Furthermore, Russia’s decision to lift its ban on gasoline exports and ease restrictions on diesel exports last month could contribute to an increase in global supplies of these motor fuels.
Meanwhile, despite ongoing intense fighting, U.S. and Israeli officials expressed optimism that a deal to release some of the hostages held in the besieged Gaza enclave was nearing fruition.
Additionally, last week, U.S. energy firms added oil and gas rigs for the first time in three weeks, as reported by energy services firm Baker Hughes on Friday. The oil and gas rig count serves as an early indicator of future output.