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Oil Extends Gain From Nine-Month High After OPEC+ Clinches Deal

(Bloomberg) — Oil extended gains from a nine-month high after OPEC+ reached a compromise deal to gradually taper output cuts from the start of next year.

Futures added 1.8% in London after rising 1% on Thursday and are heading for a fifth weekly gain. The group will start adding 500,000 barrels a day of crude to the market in January and ministers will then hold monthly meetings to decide on the next steps. The deal avoided a breakdown of OPEC+ unity after a tense split between Saudi Arabia and the United Arab Emirates.

The oil futures curve, meanwhile, is signaling tighter supply and a brighter long term outlook. The prompt timespread for global benchmark Brent crude moved further into backwardation, while the nearest December contract is trading at a higher level than the same contract for December 2022.



chart: Oil poised for fifth weekly gain after OPEC+ deal


© Bloomberg
Oil poised for fifth weekly gain after OPEC+ deal

The OPEC+ deal — agreed after almost a week of fraught negotiations — offers something to those members concerned about the fragility of the market, and also to nations wanting to pump more to take advantage of higher prices. Oil has rallied recently on optimism fuel demand will start to rebound once Covid-19 vaccines are widely distributed.

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“Energy markets are embracing OPEC+’s decision to ease up production cuts and it’s a welcome signal,” said Edward Moya, a senior market analyst at Oanda. “There’s uncertainty but also good reason to be optimistic for the demand outlook toward the later part of the first quarter.”

Prices
Brent for February settlement climbed 86 cents to $49.57 a barrel on the ICE Futures Europe exchange as of 9:54 a.m. Singapore time after closing at the highest level since March 5 on ThursdayFutures are up 2.8% this weekWest Texas Intermediate for January delivery added 1.6% to $46.38 on the New York Mercantile ExchangeFutures are 1.9% higher this week

Prior to the OPEC+ meeting, market watchers were expecting the alliance to delay the easing of planned output cuts by three months. Adjustments to the tapering can be in any direction, with a potential decision based on all factors, both negative and positive, Russian Deputy Prime Minister Alexander Novak said after the meeting on Thursday.

The deal will still allow for the oil market to remain in deficit throughout the first quarter of next year, according to TD Securities. There should be a steady and sustainable rally in prices through 2021 with OPEC+ exiting its production cuts in a coordinated way, Goldman Sachs Group Inc. said in a note.

Adding to positive sentiment are signs that the U.S. may be closing in on new stimulus to boost the pandemic-hit economy ahead of a vaccine rollout. The global demand recovery is uneven, with the U.S. and Europe grappling with a resurgent coronavirus, while parts of Asia rebound strongly.

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