Houston, November 20 (Reuters) — Oil prices experienced a notable surge of over 2% on Monday, with expectations of further supply cuts in OPEC+ production emerging ahead of a meeting among member countries scheduled for early next week.
Brent crude futures concluded with a gain of $1.71, equivalent to 2.1%, settling at $82.32 per barrel. The front-month December West Texas Intermediate crude (WTI) reached $77.60 at expiration, marking an increase of $1.71 or 2.3%. The more actively traded January futures also saw an uptick, rising $2.39 to $77.83, up 1.8%.
Although both benchmarks witnessed a four-week decline, signs of recovery surfaced on Friday, with a 4% increase attributed to profit-taking. Additionally, three sources within OPEC+ informed Reuters that the producer group, comprised of the Organization of the Petroleum Exporting Countries and allies including Russia, is contemplating additional supply cuts during its meeting on November 26.
John Kilduff, a partner with Again Capital LLC, remarked, “The OPEC commentary signaling further cuts came right on cue. I would expect any cut would be modest. The Saudis have cut so much production, I don’t know how much more they can do.”
Goldman Sachs, relying on its statistical model of OPEC decisions, suggested that deeper cuts should not be dismissed, considering the decline in speculative positioning, timespreads, and higher-than-anticipated inventories.
The recent weeks witnessed a nearly 20% decline in oil prices since late September, primarily driven by record-high crude output in the U.S., the world’s leading producer. Concerns about demand growth, particularly from China, the top importer of oil, added to the downward pressure.
Last week, inter-month spreads for Brent and WTI moved into contango, indicating ample supply as prompt barrels became cheaper than those in future months.
Traders remained vigilant for signs of demand destruction, contemplating a potential U.S. recession in 2024 and heeding Walmart’s (WMT.N) warning about possible deflation.
However, the focal point for traders remained the upcoming OPEC+ meeting set for Sunday. Andrew Lipow, president of Lipow Oil Associates, highlighted that members would prioritize discussions on supply and demand rather than using crude as a geopolitical tool. The ongoing conflict in the Middle East, particularly the war between Israel and Hamas, added a layer of geopolitical complexity to the discussions, with some member countries expressing concerns about the conflict escalating into a regional issue. Their primary objective remains ensuring the uninterrupted flow of oil.