Crude oil futures rally as uncertainty over OPEC+ production plan eases

Singapore — 0300 GMT: Crude oil futures rose during mid-morning trade in Asia Dec. 4, extending overnight gains, as uncertainty over OPEC+ production plan abated after the alliance settled on a compromise deal that would see a gradual and deliberated increase in production quotas from 2021 onward.

At 11 am Singapore time (0300 GMT), ICE Brent February contract was up 94 cents/b (2.05%) from the Dec. 3 settle to $49.65/b, while the January NYMEX light sweet crude contract was up 82 cents/b (1.8%) at $46.46/b.

Prior to this, clarity over the OPEC+ production had also propelled the Brent market 0.95% higher on Dec. 3 to settle at its highest level since March 5, with the WTI marker also rising 0.80% to settle just a shade under its most recent high on Nov. 25.

During its Dec. 3 meeting, OPEC+ increased the alliance's collective production quota by 500,000 b/d from January 2021, and decided to meet monthly to determine if further increases are warranted.

Each monthly adjustment, according to Russian energy minister Alexander Novak, will not exceed 500,000 b/d in either direction, with Iranian oil minister Bijan Zanganeh telling state media that this arrangement will persist until total production rise reaches 2 million b/d.

"This was a compromise deal designed to hold together the members who are faced with varying economic conditions and have conflicting agendas," Vandana Hari, CEO of Vanda Insights, said.

This production plan falls short of expectations, which were centered around a three-to-six month extension of the current 7.7 million b/d production cuts, but nevertheless placated the market, which had started to grow uneasy over reports of fractiousness within the alliance.

"This is a relief rally that we are seeing in crude prices more in response to what did not happen as compared to what was decided. The market is relieved that the two possibilities of a supply increase of 2 million b/d or even a complete breakdown of collaboration over the disagreements did not come to pass," Hari said.

Hari, however, noted that this arrangement will introduce more volatility to oil prices going forward, as each monthly meeting over the production cuts will create apprehension in the market, and repeated discussion over an issue this contentious may also threaten the unity of the alliance.

"As the market digests the full implications of this deal, the bullish mood that we are seeing right now will dissipate a little, and as the market looks beyond, the focus is going to settle back once again on the vaccine versus virus debate, and what impact these two factors will have on the oil demand in the immediate term."