OIL FUTURES: Brent hits nine-month high as OPEC+ commits to partial quota extension

New York — Oil prices settled higher Dec. 3 after an OPEC+ meeting ended with a compromise deal that would see production rising incrementally after December.

NYMEX January WTI settled 36 cents higher at $45.64/b, while ICE February Brent was up 46 cents at $48.71/b.

Unable to agree on a long-term production plan, OPEC and its partners will set output levels month to month, aiming to release crude gradually onto the market without tipping it into a supply glut during an uncertain recovery from the pandemic, ministers said Dec. 3.

Front-month ICE Brent last settled higher March 5, while WTI finished just under its most recent high seen Nov. 25.

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The deal calls for the OPEC+ alliance to boost production by an initial 500,000 b/d in January, after which ministers will meet monthly to determine whether to adjust that for the month ahead.

NYMEX January RBOB settled 2.18 cents higher at $1.2617/gal, while January ULSD climbed 2.71 cents to $1.3933/gal.

The OPEC+ group, which controls roughly half of global crude production capacity, is currently cutting 7.7 million b/d from November 2018 levels. Without a deal, the curbs were scheduled to ease about a quarter to 5.8 million b/d from January. Now the cuts will scale back to 7.2 million b/d and then be fine-tuned as market conditions warrant.

"I think energy markets are content with the modest increase and I think it will still allow [OPEC+] to provide that goal of getting the market toward balance," OANDA senior market analyst Edward Moya said. "No one knows how the crude demand outlook is going to unfold in the next few months depending on how quickly things get back to normal, so we will probably have monthly decisions become the norm until the outlook is a lot clearer."

The OPEC+ deal proved more bullish for Brent futures, which are typically considered to be more exposed to global fundamentals. Year-ahead Brent futures settled at a 99 cent/b discount to the front-month, the widest backwardation in that part of the curve since Feb. 21.

WTI prices, while also higher, faced headwinds from the continued threat of pandemic lockdowns across the US. The one-year WTI spread moved to 64-cent/b backwardation, out from 29 cents/b the session prior, but near-term contracts remained in contango. Second-month WTI settled at a 15 cent/b premium to front-month and the sixth-month contract settled in a 29 cent/b contango.

A weakened US dollar added further support to crude prices. The ICE US Dollar Index was holding at around 90.7 in afternoon trading, on pace to close at the lowest level since April 2018.

Los Angeles County — the largest in the US — issued a stay-at-home order Dec. 2 restricting non-essential travel and businesses. The order, reminiscent of broader lockdowns seen in spring, is among the most restrictive seen in the US in recent weeks as the nation battles to contain a resurgent pandemic.

In New York City, the seven-day average COVID-19 positivity rate climbed to 5.19% Dec. 1, prompting mayor Bill de Blasio to warn of an impending second-wave pandemic. New York Governor Andrew Cuomo Nov. 30 ordered hospitals to take emergency precautions in the face of rising caseloads and suggested the state could again implement lockdown measures similar to those this past spring.