Oil keeps climbing on hopes Opec+ will hold back supply as Covid-19 cases rise

Saudi Arabia has indicated publicly that the kingdom is thinking twice about easing production cuts in January.
Saudi Arabia has indicated publicly that the kingdom is thinking twice about easing production cuts in January.PHOTO: AFP

MELBOURNE (REUTERS, BLOOMBERG) - Oil prices rose in early trade on Thursday (Nov 12), taking the week’s gains to more than 12 per cent on growing hopes that the world’s major producers will hold off on a planned supply increase as soaring cases of Covid-19 dent fuel demand.

Algeria’s energy minister said on Wednesday that Opec+ - grouping the Organization of the Petroleum Exporting Countries (Opec) and other suppliers including Russia - could extend current production cuts of 7.7 million barrels per day (bpd) into 2021, or deepen them further if needed.

The weakening outlook has piled pressure on Opec+ to delay a supply increase of two million bpd scheduled for January, which the market is now pricing in, analysts said.

US West Texas Intermediate (WTI) crude futures climbed 35 cents, or 0.8 per cent, to US$41.80 a barrel at 0130 GMT, while Brent crude futures rose 31 cents, or 0.7 per cent, to US$44.11 a barrel.

Both Brent and WTI have soared this week, lifted by hopes that the global coronarivus pandemic can be brought under control after initial trial data showed an experimental Covid-19 vaccine being developed by Pfizer and Germany’s BioNTech was 90 per cent effective.

“It’s great news, no question about that ... But it will take time for vaccines to be rolled out, and therefore it will take time for demand to be positively impacted by that,” said Lachlan Shaw, National Australia Bank’s head of commodity research.

In the meantime, fuel demand is under pressure from rising infections in Europe, the United States and Latin America. As a result, Opec has said demand will rebound more slowly in 2021 than previously thought.

“In many ways the market is looking forward into 2021, to a time when we do have vaccines rolling out, and to a time where Opec and allies have held back some of those scheduled supply increases,” National Australia Bank’s Shaw said.

Meanwhile, talks between Opec and its allies are zeroing in on a delay to next year’s planned oil-output increase of three to six months, according to several delegates.

Saudi Arabia and Russia, leaders of the 23-nation coalition, have already indicated publicly that they are thinking twice about easing production cuts in January as the resurgent pandemic hits fuel demand.

The presidents of both Russia and the Opec have even mentioned the option of cutting production deeper. This idea hasn’t garnered widespread support so far among other members, one delegate said.

Less than three weeks before members meet to take a final decision, the alliance is instead increasingly focused on maintaining the current cutbacks into early 2021, the delegates said, asking not to be identified as the talks are private. The alliance is keeping about 7.7 million barrels a day off-line right now, or 8 per cent of global output.

Nothing is certain until ministers hold an online meeting from Nov 30 to Dec 1. The United Arab Emirates, which has recently chafed at its Opec commitments, emphasized on Monday that consensus is necessary for the deal to be amended.

“We have to be all convinced that tweak is required,” Energy Minister Suhail Al Mazrouei said at the online Adipec conference.