Oil futures: Crude rallies on OPEC+ deal hopes, Kazakhstan output slumps

28 Nov 2023

Quantum Commodity Intelligence – Brent crude oil futures rallied strongly late-afternoon in London as sentiment moved towards an agreement in time for Thursday's OPEC+ meeting, while a sharp reduction in Kazakhstan's exports provided a further lift. 

Front-month Jan24 ICE Brent futures were trading at $81.74/b (1945 GMT Tuesday), compared to Monday's settle of $79.98/b, while the more-liquid Feb24 contract was around $0.20/b below the front month. 

At the same time, Jan24 NYMEX WTI was trading $76.48/b versus Monday's settle of $74.86/b.

Latest reports indicate that OPEC kingpin Saudi Arabia is pushing other coalition members to accept extended cuts in a bid to shore up prices in the face of uncertain oil demand and economic growth for the new year.

But several members, including Nigeria, Angola and the UAE, are said to be reluctant to commit to long-term reductions, and in the case of the West African nations accepting lower baseline rates that will cap future expansion plans.

Despite the disagreements, most analysts believe that OPEC+ will get some form of deal over the line, with the alternative for producers a potential catastrophic price retreat.

"The group has always found a way to get an agreement over the line before, even if that means the biggest producers taking on more of the additional commitments so it's probably safe to say something similar will be achieved this week," said Craig Erlam, analyst at brokerage Oanda.

"But the question is how far they'll push it, given the recent trend in oil prices and increasing concerns around global growth next year," added Erlam.

However, some analysts said the OPEC+ meeting could be pushed into next week to finalise details, although Nigeria was said to be nearing a compromise deal Tuesday. 

Prices were also lifted Tuesday on reports Kazakhstan’s output from its largest oil fields is down around 56% because of the storm as output is throttled due to a lack of storage capacity, with production from the Kashagan, Karachaganak, and Tengiz fields at 102,000 mt per day.

Market share

The group is also faced with growing non-OPEC+ production, particularly from the Americas, which has also raised concerns for OPEC+ that further cuts risks giving up long-term market share.

According to figures from the latest IEA monthly report, record output from the US, Brazil and Guyana underpin this year’s 1.7 million bpd in global oil supplies, while non-OPEC supply continues to lead growth of around 1.6 million bpd next year to a record 103.4 million bpd.

On the economic front, new home sales dipped 5.6% in October, offsetting September's 8.6% increase. But despite October's dip, new home sales largely have remained resilient compared to the broader housing market slump.

"In contrast to the recent weakness in resales, more favorable supply dynamics continue to nudge prospective buyers toward new construction," said Wells Fargo in its latest investor note.

Meanwhile, Federal Reserve Governor Christopher Waller, said he is increasingly confident in the Fed’s policies to bring inflation back under control, but there was no hint of cutting rates anytime soon.

“While I am encouraged by the early signs of moderating economic activity in the fourth quarter based on the data in hand, inflation is still too high, and it is too early to say whether the slowing we are seeing will be sustained,” he said in a prepared speech.

“But I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 percent. That said, there is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability.”