WTI, Brent futures rise as markets expect OPEC+ cuts

Oil futures climb on Monday as markets expect cuts ahead of weekend OPEC+ meeting

Brent crude futures passed $82 per barrel on Monday, building on gains from the previous session as investors zero in on the upcoming OPEC+ meeting this weekend, where the group is anticipated to deepen supply cuts to bolster oil prices.

Futures for U.S. oil benchmark West Texas Intermediate (WTI) gained close to 3% to trade around the $78.3 mark.

Both contracts closed 4% higher on Friday after reports from three OPEC+ sources indicated that the producer group, composed of the Organization of the Petroleum Exporting Countries (OPEC) and allies such as Russia, is poised to assess the possibility of implementing extra supply cuts during its meeting in Vienna on November 26.

Tamas Varga of oil broker PVM told the Reuters news agency that the longer-term price impact of the potential oil supply cuts is “dubious”:

"In light of last week's obliteration of oil bulls, some kind of response was forthcoming from the (OPEC) producer group. If additional cuts are agreed, a short-term price boost is expected, but its longer-term price impact seems dubious as enforcement and adherence will be the salient issue."

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Oil prices: Erosion of Israel-Hamas risk premium, robust supplies put downward pressure on the commodity

OPEC+ members Russia and Saudi Arabia recently reiterated their commitment to maintain output cuts until the end of the year. Saudi Arabia will stick to a 1 million barrel per day (bpd) production cut until December, while Russia will continue its additional supply cut of 300,000 bpd from its crude exports.

Oil prices have declined by nearly 20% since late September. Last week, prompt inter-month spreads for Brent and WTI shifted into contango. In a contango market, prompt prices are lower than those in future months, signaling an abundance of supply. The decline has also been spurred by the erosion of the risk premium associated with the Israel-Hamas war, when markets feared that the conflict would spread across the Middle East, potentially disrupting supply.

Recent data has also indicated a notable increase in crude oil inventories in the U.S., while Russia has lifted a ban on gasoline exports.

Oil price forecast: ANZ sees Saudi maintain cuts, keeping prices elevated

In his oil market overview on Friday, ANZ Bank Senior Commodity Strategist Daniel Hynes broadly agreed with market consensus, saying that he expects Saudi Arabia to extend production cuts into 2024:

“Crude oil rebounded strongly on Friday as market expectations of further support from OPEC rose. This came after stockpile data raised concerns of weaker demand earlier in the week. US commercial crude oil inventories rose 17.5mbbl over the past two weeks. However, easing market tightness has been exacerbated by growth in non-OPEC supply. A balanced oil market now remains reliant on production cuts being maintained well into 2024.

Assuming the Israel-Hamas war remains contained, with state actors such as Iran largely remaining on the sidelines, Middle East output would remain unaffected. The tightness in Q4 would likely evaporate in Q1 2024 as Chinese growth fades. This presents a challenge for the OPEC+ alliance. Drawdowns in global inventories were supported by production cuts, and then accelerated following Saudi Arabia’s voluntary cut of 1mb/d. If Saudi Arabia were to reverse its unilateral production cuts, prices would likely to drop below USD70/bbl. However, on the balance of risks, we think Saudi Arabia will extend its production cuts into 2024 if it wants prices to remain above USD80/bbl”.

OPEC+ meeting: ING sees Saudi Arabia, Russia roll over production cuts into 2024

In a commodities market overview on Monday, ING strategists Warren Patterson and Ewa Manthey said they expected Saudi Arabia and Russia to extend their production cuts into the following year. Whether they would restrict output further remains unclear:

“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. However, the recent weakness has increased noise over what OPEC+ will decide to do at its meeting on 26 November.

We continue to expect that Saudi Arabia and Russia will roll over their additional voluntary cuts into early 2024. 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. 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”.

At the time of writing on Monday, the continuous contract for ICE Brent crude traded at $82.87, up 2.80% on the day. A similar contract for WTI crude oil traded at $78.39, up 3.09% on the day, as per MarketWatch data.

When considering oil and other commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.