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U.S. oil prices settle Monday at a nearly 7-year high after OPEC+ opts to stick to original output plan



By Myra P. Saefong and Mark DeCambre / MarketWatch

Petroleumworld 10 04 2021

Oil futures rallied Monday, with U.S. prices marking their highest finish since 2014, after OPEC and its allies maintained its current agreement to gradually raise crude production each month.

“After undertaking dramatic cuts in the second quarter of 2020, the OPEC+ oil producer group has only gradually added supply back to a market that is seeing demand on a path to full recovery by 2022,” Peter McNally, global sector lead for industrials, materials and energy at Third Bridge, told MarketWatch.

On Monday, the Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, reaffirmed its July decision and will raise overall oil production monthly by 400,000 barrels a day in November. At the July meeting, OPEC+ said it would raise its overall production by 400,000 barrels a day starting in August until it fully phased out the production cuts in put in place last year.

The gathering was notable for its brevity and the fact that OPEC+ held to its original production plan.

Read: Why the oil market is both bullish and ‘on edge’ after the OPEC+ output decision

By “only” adding 400,000 barrels a day of supply back to the market each month, McNally said experts at Third Bridge expect oil inventories to “continue to decline for the balance of the year. ”

However, OPEC+ continues to hold monthly meetings, which allows the group to “course correct quickly to the changing supply/demand outlook,” McNally said. So the producers it will “have the opportunity to gather and determine if an adjustment is needed in just a few weeks time.”

OPEC+ had been widely expected to keep its previous production plan in place.

November West Texas Intermediate crude CLX21, +0.35% CL.1, +0.35% climbed by $1.74, or 2.3%, to settle at $77.62 a barrel on the on the New York Mercantile Exchange, with front-month prices ending at their highest since Nov. 11, 2014, according to Dow Jones Market Data.

The December Brent contract BRNZ21, +0.58% BRN00, +0.58%, the international benchmark, meanwhile, added $1.98 or 2.5%, to settle at $81.26 a barrel on ICE Futures Europe — the highest finish since Oct. 16, 2018.

Based on the front-month contracts, WTI crude futures rose 2.6% last week and Brent crude ended nearly 2.7% higher for the period.

The outcome of the OPEC+ production policy has been “rapidly falling inventories over the last 15 months,” McNally said.

“At peak in June 2020, crude oil and refined product inventories in the OECD were more than 9% above their five-year seasonal averages,” he said. “By the end of summer 2021, stockpiles were more than 6% below normal.”

At the same time, “other sources of supply have been slow to respond to the price recovery in crude oil,” said McNally. “U.S. oil output was impacted by the effects of Hurricane Ida in late August, but more significantly, U.S. producers have been hesitant to increase drilling activity in all regions.”

Overall, the “result has been tepid supply growth,” he said.

Among the oil products traded on Nymex, November gasoline RBX21, +0.41% climbed by 2.6% to $2.309 a gallon, the highest front-month finish since Aug. 30. November heating oil HOX21, +0.57% tacked on 2.3% to $2.437 a gallon, marking the highest settlement since Oct. 2018.

November natural gas NGX21, +2.64% rose 2.6% at $5.766 per million British thermal units, after climbing just over 8% last week, and ending September with a gain of 34%.


By Myra P. Saefong and Mark DeCambre from MarketWatch 10 04 2021



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