Oil Enjoys Huge Monthly Rise On End Of Pandemic Hopes, As OPEC Leans Towards Output Extension

Meanwhile, a huge surge in air travel is expected in China: File Image/PixaBay

Despite the Organization of the Petroleum Exporting Countries (OPEC) reaching a much-anticipate broad consensus on the need to extend its oil production cuts, crude prices on Monday dropped - however, they still enjoyed more than a 25 percent gain in their biggest monthly rise since May, on hopes that Covid-19 vaccines will soon be available.

Brent crude for January delivery settled down 59 cents at $47.59 per barrel, while the more actively traded February Brent contract was down 37 cents at $47.88; West Texas Intermediate crude for January delivery settled at $45.34 per barrel, down 19 cents.

Abdelmadjid Attar, energy minister for Algeria and current president of OPEC, said there was "consensus at the OPEC level" to extend current supply cuts of 7.7 million barrels per day (bpd) for another three months; the talks will continue on Tuesday.

John Kilduff, founding partner at Again Capital, expressed the reservations of his colleagues by remarking, "A lot of those statements get taken with a grain of salt; you would have liked to have heard it from the Saudis or a bigger player on the stage than just the Algerians."

Hussein Sayed, analyst at FXTM, pointed out that demand has recovered in Asia but not Europe and the U.S., which presents OPEC with a "challenging choice on whether to delay or bring back more oil."

Meanwhile, since the announcement of three vaccine breakthroughs several weeks ago, fear of rising Covid infection rates seems to have somewhat abated, and Goldman Sachs said a winter surge in cases would not prevent the oil market rebalancing as a result of vaccine progress; it forecast Brent rising to $65 in 2021.

Capital Economics sees Brent at $60 next year due to the vaccines, and Ron Smith, an oil and gas analyst at BCS Global Markets, believes there are reasons to be bullish on prices, especially on a six-month view.

However, BCS Global Markets, while bullish, warned that there is substantial supply waiting in the wings from OPEC+ and "hyper-dynamic U.S. shale producers itching to drill again.......[rig activity] was rising steadily this fall, even before oil began its most recent rally, and we think that as oil prices head towards $50 per barrel, a key inflection point may be crossed, accelerating U.S. oil drilling activity and, with a small lag, oil production."

The one country relatively unaffected by any of this is China, which is continuing its economic rebound from the lockdown induced crash: Bloomberg noted that alongside strong manufacturing data, at least one fuel supplier is gearing up for an expected surge in air travel ahead of the Lunar New Year holiday in February.