Oil Gains On Expectations of OPEC Cut Extensions

by Ship & Bunker News Team
Monday November 20, 2023

Two key crude benchmarks extended their gains on Monday on the strength of expectations that the Organization of the Petroleum Exporting Countries (OPEC) will enact further supply cuts when it meets next weekend.

Brent settled up $1.71, or 2.1 percent, at $82.32 per barrel, and December West Texas Intermediate also settled up $1.71, or 2.3 percent, at $77.60.

A host of circumstances was said to have contributed to analytical expectations for OPEC, including: hedge funds having reduced oil bets to the point they are more bearish than they have been in 20 weeks; a rising rate of short positions that render the market susceptible to a reversal; and the perception that oil supplies for the remainder of the year are not as tight as initially thought.

These elements led Goldman Sachs on Monday to remark that "given the fall in speculative positioning and in time spreads and higher-than-expected inventories," it wasn't ruling out deeper OPEC production cuts, and Saudi Arabia is widely predicted to extend an extra 1 million barrels per day (bpd) of cutbacks into early next year.

Monday's trading was also a reaction to last week's substantial rout; Dennis Kissler, senior vice president of trading at BOK Financial, explained, "We're retracing some of the losses last week on ideas the selloff by fund liquidation was probably over-exaggerated."

But some experts cautioned their colleagues not to be overly influenced by the impact of the OPEC cuts if and when they are sanctioned.

Tamas Varga, analyst at PVM, said, "In light of last week's obliteration of oil bulls, some kind of response was forthcoming from the (OPEC) producer group.

"If additional cuts are agreed, a short-term price boost is expected, but its longer-term price impact seems dubious as enforcement and adherence will be the salient issue."

It was also noted that even if OPEC extended and enforced its cuts, the changing dynamics of the cartel meant that some members would be able to increase production anyway.

Case in point: the United Arab Emirates, which in June obtained an upward revision of its quota that will take its production up by 200,000 bpd to 3.2 million bpd next year.

Indeed, ING strategists Warren Patterson and Ewa Manthey wrote on Monday that while they "continue to expect that Saudi Arabia and Russia will roll over their additional voluntary cuts into early 2024, what is less clear is whether the broader OPEC+ group will make further cuts."