Oil edged lower on Monday as the world’s major oil producers discussed extending deep output cuts at talks this week, but benchmark crude ended the month with a strong rally built on hopes that COVID-19 vaccines will soon be available.
Brent crude for January delivery, which expires on Monday, settled at $47.59 a barrel, dropping 59 cents, or 1.2%. The more actively traded February Brent contract was down 37 cents at $47.88.
U.S. West Texas Intermediate crude for January delivery settled at $45.34 a barrel, down 19 cents, or 0.4%.
OPEC members reached a broad consensus on the need to extend existing oil production cuts for three months from January if their allies in the wider OPEC+ group also support such a move, ministers and delegates said.
The Organization of the Petroleum Exporting Countries, Russia and others, known as OPEC+, plan to hold wider talks on Tuesday after discussions of key ministers on Sunday failed to reach a consensus.
Algerian Energy Minister Abdelmadjid Attar, holder of the OPEC’s rotating presidency, said there was “consensus at the OPEC level” to extend current supply cuts of 7.7 million barrels per day for another three months. Until recently, the cartel had planned to trim the size of those cuts by 2 million bpd, adding more supply to the market.
Attar said OPEC members were working to convince Russia and other allies in OPEC+ to support the move, but the comments were not enough to ease investors’ nerves.
“A lot of those statements get taken with a grain of salt,” said John Kilduff, partner at Again Capital LLC in New York. “You would have liked to have heard it from the Saudis or a bigger player on the stage than just the Algerians.”
Oil prices have climbed this month, logging more than a 25% gain in their biggest monthly rise since May, as COVID-19 vaccine developments raise hopes for an economic recovery that could boost fuel demand.
“If we get to the point of an emergency vaccine approval, that would be supportive, but the market understands that for the next couple weeks we’re going to need some support from OPEC,” said Phil Flynn, senior analyst at Price Futures Group in Chicago.
A Reuters poll of 40 economists and analysts forecast Brent would average $49.35 a barrel next year, estimating that prices would have some trouble sustaining a rally.
Demand has recovered in Asia but not Europe and the Americas, presenting OPEC+ with a “challenging choice on whether to delay or bring back more oil,” said FXTM analyst Hussein Sayed.
Goldman Sachs said a winter surge in COVID-19 cases would not prevent the oil market rebalancing as a result of vaccine progress. It saw Brent rising to $65 in 2021.
Source: Reuters (Reporting by Laila Kearney; Additional reporting by Bozorgmehr Sharafedin in London, Florence Tan and Koustav Samanta in Singapore
By Marguerita Choy, Edmund Blair and Paul Simao