Oil futures experienced a modest uptick on Monday, extending their gains amid expectations that OPEC+ would deepen supply cuts to stabilize prices. This positive momentum follows a four-week decline in prices, initially fueled by a reduction in concerns about disruptions in Middle East supply due to the Israel-Hamas conflict.
As of 0400 GMT, Brent crude futures rose by 57 cents, or 0.7%, reaching $81.18 per barrel, while U.S. West Texas Intermediate crude reached $76.40 per barrel, up 51 cents or 0.7%. The December contract, set to expire later on Monday, saw an increase, and the more active January futures gained 55 cents, or 0.7%, reaching $76.59 per barrel.
Friday saw both contracts closing 4% higher, prompted by reports from three OPEC+ sources indicating that the producer group, comprised of OPEC and allies like Russia, would discuss the possibility of implementing additional oil supply cuts during its meeting on November 26.
Oil prices had witnessed a nearly 20% decline since late September, and concerns had risen as prompt inter-month spreads for Brent and WTI entered contango last week. A contango market, where prompt prices are lower than those in future months, typically signals an ample supply.
Goldman Sachs analysts noted, “Our statistical model of OPEC decisions suggests that deeper cuts should not be ruled out given the fall in speculative positioning and in timespreads, and higher-than-expected inventories.”
The baseline forecast from Goldman Sachs anticipates that the existing production cuts by the group will remain in place through 2024, with Saudi Arabia’s unilateral cut of 1 million barrels per day expected to extend into the second quarter of the next year, gradually reversing from July.
IG analyst Tony Sycamore expressed the possibility of WTI prices rising toward $80 a barrel if OPEC+ announces deeper cuts at their upcoming meeting. However, he added that a drop below $72 might lead the Biden administration to refill the U.S. Strategic Petroleum Reserve, suggesting a rebound in prices in the first half of the week.
Investors are closely monitoring the potential disruption in Russian crude oil trade following Washington’s imposition of sanctions on three ships transporting Sokol crude to India. Additionally, the lifting of Moscow’s ban on gasoline exports and the removal of most restrictions on diesel exports last month may contribute to global fuel supplies.
In the Middle East, reports from U.S. and Israeli officials indicate that a deal to release hostages in Gaza is nearing despite ongoing conflicts. Meanwhile, U.S. energy firms added oil and gas rigs for the first time in three weeks, according to energy services firm Baker Hughes, serving as an early indicator of potential future output.