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Crude oil futures higher as Saudi OSPs suggest outlook remains firm

Crude oil futures started the week higher in mid-morning trade in Asia Dec. 6, with sentiment boosted by the release of Saudi Aramco's latest official selling prices that suggested the kingdom was confident in the outlook for oil demand.

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At 10:18 am Singapore time (0218 GMT), the ICE February Brent futures contract was up $1.73/b (2.48%) from the previous close at $71.61/b, while the NYMEX January light sweet crude contract was $1.68/b (2.54%) higher at $67.94/b.

"After a weak close on Friday, oil markets have opened stronger this morning," ING analysts Warren Patterson and Wenyu Yao said in a note, pointing to the release of Saudi Aramco's January OSPs over the weekend that raised Asia-bound differentials by up to 80 cents/b.

"The increase in OSPs into Asia comes despite OPEC+ agreeing to stick to its plan of increasing output by 400,000 d/d in January, and despite uncertainty over the omicron variant and the expectation that the market will be better supplied in Q1 2022. The move suggests that the Saudis have confidence in the demand outlook, and the market appears to be taking comfort in that," the analysts aid.

Sentiment in oil markets appeared to have turned a corner after steep price declines in the last two weeks sent oil prices skidding to three-month lows.

US investment bank Goldman Sachs late last week said the recent price declines have been overdone, and current oil prices offered "compelling opportunities" to reinvest, according to media reports.

The latest Commitment of Traders reports from the Intercontinental Exchange and the US Commodity Futures Trading Commission showed investors liquidating their long positions in both the Brent and NYMEX crude oil benchmarks in recent weeks.

Speculative net long exposures to the NYMEX light sweet crude benchmark have fallen to lows not seen since April 21, 2020, according to the most recent data until the week ended Nov. 30, US CFTC data showed.

"The flushing out of longs leaves the door open for speculators to come back into the market at these lower levels," Patterson and Yao said.

Nonetheless, analysts warned that oil prices could face headwinds from a stronger dollar over the coming months.

Despite a series of mixed economic readings from the US last week, public comments from senior US Federal Reserve officials suggested they remained intent on scaling down the Fed's monthly asset purchases and hiking interest rates earlier than planned.

"Having largely outperformed expectations over the past eight months, any higher-than-expected reading may support the stance that the Fed is indeed behind the curve in fighting inflation and that an earlier shift in timeline for rate hikes may be needed," said IG market strategist Yeap Jun Rong, referring to the US consumer price index for November to be released this week. "The US dollar may see further tailwind if that occurs," he added.

As of 0218 GMT, the US dollar index was up 0.14% at 96.25.