Oil climbs higher on China, Japan rebound, hopes of OPEC+ supply curb
Oil prices climbed on Monday, recouping some losses from the previous session as hopes that OPEC+ will hold current output curbs offset concerns about weaker fuel demand due to rising COVID-19 cases and higher production from Libya.
Figures showing a rebound in the world’s second and third largest economies, China and Japan, also supported prices, along with data that Chinese refineries processed the most crude ever in October on a daily basis.
Brent crude futures for January LCOc1 rose 44 cents, or 1%, to $43.22 a barrel by 0204 GMT, while U.S. West Texas Intermediate crude for December CLc1 was at $40.67 a barrel, up 54 cents, or 1.4%.
“Fundamentally China’s numbers do support why oil prices can keep at these levels,” OCBC economist Howie Lee said.
Both contracts gained more than 8% last week on hopes of a COVID-19 vaccine and that the Organization of the Petroleum Exporting Countries (OPEC) and their allies including Russia will maintain lower output next year to support prices.
The group, also known as OPEC+, has been cutting production by about 7.7 million barrels per day, with a compliance rate seen at 101% in October, and had planned to increase output by 2 million bpd from January.
OPEC+ is due to hold a ministerial committee meeting on Tuesday which could recommend changes to production quotas when all the ministers meet on Nov. 30 and Dec. 1.
However, the speedy recovery of oil production in Libya, an OPEC member, back to above 1.2 million bpd presents a challenge to OPEC+ cuts, while a slowdown in traffic across Europe and the United States dampened fuel demand recovery hopes this winter.
“European motorway traffic is down almost 50% in recent weeks in some countries (such as France) as lockdown measures are increased,” ANZ analysts said.
People movement on highways in the United States was also slowing based on vehicle mileage data despite authorities’ reluctance to implement new restrictions, they added.
While fuel demand is slowing, Baker Hughes’ data showed that the U.S. oil and natural gas rig count rose last week to its highest since May as producers, spurred by higher crude prices, return to the wellpad.
ANZ analysts expect the oil surplus to increase to between 1.5 million and 3 million bpd in the first half next year with a vaccine only boosting demand in the second half.