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Image used for representational purpose (REUTERS)
Image used for representational purpose (REUTERS)

Oil edges lower after closing at nine-month high on OPEC+ deal

  • OPEC and its allies agreed last week to add 500,000 barrels a day of output from January to a market that’s showing signs of recovery.
  • The future path of crude prices now looks to be heavily dependent on how quickly Covid-19 vaccines can be rolled out.

Oil edged lower after a fifth weekly gain that was driven by an OPEC+ production deal and hopes for a vaccine-driven lift in energy demand.

Futures in New York traded near $46 a barrel after closing at a nine-month high Friday. OPEC and its allies agreed last week to add 500,000 barrels a day of output from January to a market that’s showing signs of recovery. That was followed by Saudi Arabia raising oil pricing for Asia, a sign the kingdom is confident demand is strong enough to absorb the small boost in supply.

In another sign of the strength of the Asian growth rebound, Chinese exports rose the most since early 2018 last month to jump more than 20% in dollar terms. Hopes for more US stimulus are also aiding sentiment after House Speaker Nancy Pelosi said momentum is building toward a compromise plan.

(Also read | OPEC+ closes in on deal as talks focus on gradual easing of oil output)

The future path of crude prices now looks to be heavily dependent on how quickly Covid-19 vaccines can be rolled out, with indications most Americans will be able to get one by the second quarter of 2021. OPEC+ is facing more potential supply challenges, however, as Libya continues to ramp up production and as Iran prepares to raise oil exports in a sign the Islamic Republic expects the US to ease some sanctions under a Joe Biden presidency.

“While OPEC+ averted the possibilities of a 1.9 million barrels a day boost or even another collapse of the alliance, a 500,000 barrels a day increase is hardly a decision to spur the bulls," said Vandana Hari, founder of Vanda Insights in Singapore. “US stimulus talks may become a supportive factor" but there will probably need to be more help from vaccine developments for prices to keep rallying, she said.

(Also read | PM Modi says India set to double oil refining capacity in five years)

Indian Oil Minister Dharmendra Pradhan said last week the country would like to buy from more producers when asked if he would like to see an easing of White House sanctions on Iran and Venezuela. There’s also been a rise in inquiries from China about purchasing a sludgy type of oil known as bitumen-mix, thought to be Venezuelan crude passed off as another grade, traders said.

The effects of the demand recovery in Asia are also rippling around the world. Rising buying interest from the region has pushed up physical prices for North Sea oil, with Forties crude climbing to the highest level since late August.

The oil futures curve, meanwhile, is signaling investors are comfortable with the increase in supply from OPEC+. Brent’s prompt time spread is 7 cents a barrel in backwardation -- where prompt prices are more expensive than later-dated ones -- indicating the market doesn’t see a risk of a supply glut.

This story has been published from a wire agency feed without modifications to the text.

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