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Futures in New York were little changed, after rising 0.8% on Thursday to the highest closing level in more than a week. OPEC+ ministers reached an agreement for the cartel to add 500,000 barrels a day to the market in January. The group will now hold monthly consultations to determine how to adjust production in subsequent months, a delegate said, asking not to be named because the information was private.
The market had widely expected OPEC+ to extend current production cuts by a quarter, although the oil futures curve is suggesting that additional output is needed. Brent’s nearest futures are at a premium to later ones, a structure known as backwardation that indicates tight supply. Meanwhile, the December 2021-December 2022 spreads for both West Texas Intermediate and Brent have recently moved to backwardation and furthered their rally on Thursday.
The OPEC+ compromise deal comes following a clash earlier in the week between Saudi Arabia and the United Arab Emirates on next year’s output plans. Maintaining the delicate balance the oil market finds itself in has been a complex task, with demand recovering at varying speeds worldwide and prospects for a vaccine buoying the outlook further out even as near-term risks persist.
Any adjustments to tapering oil production cuts can be in any direction, with a potential decision based on all factors, both negative and positive, Russian Deputy Prime Minister Alexander Novak said at a news conference following Thursday’s OPEC+ meeting.
Adding to oil’s bullish tone were signs that Democrats and Republicans are moving closer to agreeing another round of fiscal stimulus to lift the pandemic-hit economy ahead of a widespread vaccine rollout. While talks remain at an impasse that’s lasted since the summer, Senate Majority Leader Mitch McConnell said Thursday it was “heartening” that Democrats embraced a smaller price tag for a stimulus package without giving any indication he was willing to raise his own offer to get a deal.
©2020 Bloomberg L.P.
