Oil prices climbed on Monday, recouping some losses from the previous session as hopes that OPEC+ will hold current output curbs offset concerns over weaker fuel demand due to growing coronavirus infections and higher production in Libya.
Figures showing a rebound in the world’s second and third largest economies, China and Japan, also supported prices, along with data that Chinese refineries processed the most crude ever in October on a daily basis.
Brent crude futures for January (LCOc1) rose 54 cents, or 1.3%, to $43.32 a barrel by 0723 GMT, while U.S. West Texas Intermediate crude for December (CLc1) was at $40.76 a barrel, up 63 cents, or 1.6%.
“Fundamentally China’s numbers do support why oil prices can keep at these levels,” said OCBC economist Howie Lee.
Both contracts gained more than 8% last week on hopes of a vaccine for COVID-19 and that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, will maintain lower output next year to support prices.
The group, also known as OPEC+, has been cutting production by about 7.7 million barrels a day, with a compliance rate seen at 101% in October, and had planned to increase output by 2 million bpd from January.
OPEC+ is set to hold a ministerial committee meeting on Tuesday that could recommend changes to production quotas when all the ministers meet on Nov. 30 and Dec. 1.
However, the speedy recovery of oil production in OPEC member Libya back to above 1.2 million bpd presents a challenge to OPEC+ cuts, while a slowdown in traffic across Europe and the United States dampened fuel demand recovery hopes this winter.
“European motorway traffic is down almost 50% in recent weeks in some countries (such as France) as lockdown measures are increased,” ANZ analysts said.
People’s movement on highways in the United States was also slowing, based on vehicle mileage data, despite authorities’ reluctance to adopt new curbs, they added.
While fuel demand slows, Baker Hughes data showed that the U.S. oil and natural gas rig count rose last week to its highest since May as producers, spurred by higher crude prices, return to the wellpad.
ANZ analysts expect the oil surplus to increase to between 1.5 million and 3 million bpd in the first half next year, with a vaccine only boosting demand in the second half.
