Crude oil futures extend gains as supply remains tight ahead of OPEC+ meet

Crude oil futures extended gains in mid-morning trade in Asia Nov. 2 after a bullish overnight session, as supply remained tight amid ongoing outages in Africa and ahead of the OPEC+ meeting on Nov. 4.

At 11:10 am Singapore time (0310 GMT), the ICE January Brent futures contract was up 21 cents/b (0.25%) from the previous close at $84.92/b, while the NYMEX December light sweet crude contract rose 13 cents/b (0.15%) at $84.18/b. Both benchmarks had settled higher by 0.5%-1.2% overnight.

Output from OPEC remains partially crippled after outages last month at Nigeria and Libya knocked out at least 100,000 b/d of supply.

While some analysts have voiced caution on the pace of the increase in oil prices, others have grown more bullish, citing the ongoing global energy crisis and years of underinvestment in capacity.

"Crude prices are rallying after OPEC+ failed to hit their production goals and both Kuwait and Iraq signaled they support keeping the gradual 400,000 b/d output plan intact," said OANDA senior market analyst Edward Moya.

Analysts from Bank of America said Nov. 1 that they expect crude prices to reach $120/b by the end of June 2022.

ING analysts Warren Patterson and Wenyu Yao pointed to the widening backwardation in WTI time spreads in recent weeks, citing inventory levels in US storage hub Cushing, Oklahoma reaching critically low levels.

"The WTI prompt time spread continues to hold firm and in fact the spread hit an intraday high of $1.88/b yesterday [Nov. 1]. The strength in the WTI structure is largely due to the continued decline in inventories at the WTI delivery hub, Cushing," Patterson and Yao said.

Latest figures from the US Energy Information Administration had showed crude inventory levels at Cushing declining to 27.3 million barrels as of Oct. 22 -- a low not seen since October 2018. Investors will now be looking towards this week's inventory report from the EIA for guidance on the next move in prices.

Analysts surveyed by S&P Global Platts said Nov. 1 that they expect total US commercial crude stocks to have climbed up 300,000 barrels over the week ended Oct. 29 to around 431.1 million barrels. The expected build comes up well short of the nearly 3.5-million-barrel increase typically seen during the last week of October and would put inventories 6.3% behind the five-year average of EIA data.

Total gasoline stocks are, meanwhile, expected to have declined 900,000 barrels to around 214.7 million barrels, while distillate stocks likely fell by around 1.5 million barrels to 123.6 million barrels.

OPEC+ ministers are set to meet on Nov. 4 to discuss the course of action for December, where output is expected to increase by 400,000 b/d, according to a July agreement.

The coalition is under pressure from several consuming countries, including the US, Japan and India, to further ramp up its output to temper oil prices that have surged amid a global gas crisis, outages and a lack of oil investments due to climate change pledges.