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OIL FUTURES: Crude settles higher as demand optimism offsets OPEC+ output bumps

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OIL FUTURES: Crude settles higher as demand optimism offsets OPEC+ output bumps

Highlights

OPEC+ to raise January production as planned

Crude falls by $2/b, then recovers

The US applauds move but sticks to SPR release plan

Crude oil futures settled higher Dec. 2 as demand optimism overshadowed loosened supply outlooks after OPEC and its allies pledged to stick with its plan to boost January production.

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NYMEX January WTI settled at $66.50/b, up 93 cents, and ICE February Brent climbed 80 cents to settle at $69.67/b.

OPEC and its Russia-led allies will plow ahead with a production increase for January, despite their own predictions of a looming oil surplus, choosing for now to avoid a potentially politically thorny decision to rein in output.

NYMEX January RBOB settled 1.66 cents higher at $1.9677/gal and January ULSD rallied 2.63 cents to $2.1034/gal.

Absent clearer data on the impact of the omicron variant of the coronavirus, the OPEC+ alliance agreed Dec. 2 to raise quotas by 400,000 b/d, as prescribed by its supply pact, shrugging off market jitters over its emergence and US-coordinated releases from strategic petroleum reserves.

"The decision to keep the planned hike was accompanied with some protection as they could change their mind if further developments with the pandemic warrant a change in policy. OPEC+ seems optimistic about how bad of a hit crude demand will take from omicron and that should be viewed as partially bullish," OANDA senior market analyst Ed Moya said in a note. "The bottom appears to be in place for crude prices and that should remain the case unless several US states go into lockdown mode."

In a nod to fast-changing conditions, the producer group stood ready to reconvene "pending further developments of the pandemic, and [to] continue to monitor the market closely and make immediate adjustments if required," the group's communique stated.

Officially, ministers "remain in session," according to the statement, although the next meeting to decide on February output levels was scheduled for Jan. 4.

Oil prices moved sharply lower as news of the decision spread, with both Brent and WTI plunging $2 ahead of the US open. But prices moved steadily off session lows, crossing back into positive territory by midmorning. Still, Brent and WTI futures finished Dec. 2 still about 20% below their late-October peak.

The OPEC+ move was well-received by US officials, and was likely to reduce political pressure on the group going forward, analysts said.

"We appreciate the close coordination over the recent weeks with our partners Saudi Arabia, the UAE, and other OPEC+ producers to help address price pressures," White House Press Secretary Jen Psaki told reporters. "We welcome the decision today to continue the 400,000 b/d increase. Together with our recent coordinated release from the SPR, we believe this should help facilitate the global economic recovery."

She added that there were no plans to reconsider the SPR sales, although S&P Global Platts Analytics said the Biden administration could "hold off should market conditions or political realities warrant," adding upside for oil prices.

Energy prices were also being backstopped by bullish US employment data. Employment data provided by payroll processor ADP showed the US added 534,000 jobs in November, exceeding market estimates by about 6%. Official US Labor Department payroll data for the month is slated to be released Dec. 3.