Oil prices climbed in energy commodities on Monday, recouping some losses from the previous session. Hopes that OPEC+ will hold current output curbs are offsetting concerns over weaker fuel demand due to the virus resurgence. In addition to the growing coronavirus infections is the higher production in Libya.
Numbers showing a rebound in China and Japan, the world’s second and third largest economies, also supported prices. Additionally, data that showed Chinese refineries processed the most crude ever in October on a daily basis.
By 0723 GMT, Brent crude futures for January rose 54 cents, or 1.3%, to $43.32 a barrel. On the other hand, the U.S. West Texas Intermediate crude for December settled at $40.76 a barrel. It was up 63 cents, or 1.6%.
OCBC economist Howie Lee said, fundamentally, China’s numbers do support why oil prices can keep at these levels.
Both contracts gained more than 8% last week on hopes of a vaccine for COVID-19. Next year, the Organization of the Petroleum Exporting Countries and its allies, including Russia (OPEC+), will maintain lower output. This reduced output will be to support prices.
The group has been cutting production by about 7.7 million barrels a day. In October, compliance rate was at 101%. It had planned to increase output by 2 million bpd from January.
On Tuesday, the group is set to hold a ministerial committee meeting. This could recommend changes to production quotas. That’s when all the ministers meet on Nov. 30 and Dec.1.
Traffic Slow Down in EU and the U.S. Weakens Fuel Demand
In Libya (OPEC member), oil production recovery back to above 1.2 million bpd presents a challenge to OPEC+ cuts. Reduced traffic across Europe and the United States dampened fuel demand recovery hopes this winter.
In recent weeks, ANZ analysts said European motorway traffic is down almost 50% in some countries such as France. Lockdown measures are increased, said analysts.
People’s movement on highways in the U.S. was also slowing. This was taken from vehicle mileage data, despite authorities’ reluctance to adopt new curbs, they added.
Baker Hughes data showed the U.S. oil and natural gas rig rose last week to its highest since May. Spurred by higher crude prices, producers return to the well pad.
Analysts anticipate the oil surplus to rise to between 1.5 million and 3 million bpd. That will be in the first half next year. A vaccine will only be boosting demand in the second half.