Oil continues to post gains and rises 1% on supply cut expectations

4 December 2018 (Last Updated December 4th, 2018 11:31)

Oil prices have continued to post gains, increasing by more than 1% due to expectations of OPEC-led output cuts to reduce a supply glut. 

Oil continues to post gains and rises 1% on supply cut expectations
Oil rigs located in the western Gulf of Mexico. Credit: Jeff Miller.

Oil prices have continued to post gains, increasing by more than 1% due to expectations of OPEC-led output cuts to reduce a supply glut.

Production cuts enforced by the Canadian province of Alberta have also contributed to the rise in prices.

Brent crude oil futures LCOc1 rose 70 cents, or 1.1%, to reach $62.39 a barrel, while US West Texas Intermediate (WTI) crude futures CLc1 jumped by 58 cents, or 1.1%, to stand at $53.53, Reuters reported.

The gains continue to chart an upward growth for both crude benchmarks, which increased by 4% in the previous session after the US and China reached a truce agreement over their trade war. The pact would give the countries around 90 days to resolve their differences.

“A cut in OPEC and Russia production of 1.3 million barrels per day (Mbpd) will be required to reverse the ongoing counter-seasonally large increase in inventories.”

At a meeting in Vienna, Austria, later this week, OPEC members and Russia are expected to discuss production cuts.

Phillip Futures analyst Benjamin Lu was quoted by the news agency as saying: “Oil prices look likely to move up gradually this week as investors anticipate supply cuts by OPEC.”

Goldman Sachs said in a note to clients: “A cut in OPEC and Russia production of 1.3 million barrels per day (Mbpd) will be required to reverse the ongoing counter-seasonally large increase in inventories.”

The bank further stated that it expects OPEC and Russia to jointly withhold supply to ensure Brent oil prices rise above the mid-$60 per barrel mark.

However, OPEC’s efforts are being challenged by rising production in the US, where output stands at more than 11.5Mbpd C-OUT-T-EIA. The US output growth represents an increase of around 2Mbpd in a year.

Prices were also supported by an order issued by the Alberta government to reduce production by 325,000bpd to address excess crude in storage.