OPEC+ production hike delay may signal oil price concerns, analysts say

Oil futures posted strong gains Monday after OPEC and its allies delayed plans to start unwinding production cuts by another month to the end of this year, a move analysts say will keep nearly 6M barrels off the market in December.

OPEC+ had been due to increase monthly output by 180K bbl/day starting in December, but the mere one-month extension on its own should make only a small difference to global oil supply.

But the extension through the end of 2024 “casts doubt on the group’s commitment (or wherewithal) to return supply at all” in 2025, said Macquarie energy strategist Walt Chancellor said, adding the announcement may allay some fears of a renewed OPEC+ “price war.”

“It is quite striking that OPEC+ continues to delay the scheduled production increases, at the same time as OPEC’s oil market report insists that oil market is deeply undersupplied,” noted analysts at DNB Markets.

The oil market is still expected to remain in surplus unless OPEC and its allies continue to extend production cuts through next year, but “while the delay does not change fundamentals significantly, it does potentially leave the market having to rethink the strategy of OPEC+,” according to ING analysts. “This delayed supply increase means that maybe the group is more willing to support prices than many believe.”

For its part, OPEC remains positive on demand for oil in both the short and long term, Secretary General Haitham Al Ghais said.

Front Month Nymex Crude (CL1:COM) for December delivery settled +2.8% to $71.47/bbl, its fourth straight daily gain, and front-month January Brent (CO1:COM) ended +2.7% to $75.08/bbl, the best close for both benchmarks since October 25.

U.S. natural gas futures closed higher for the first time in four sessions, with the Nymex front-month December contract (NG1:COM) +4.4% at $2.781/MMBtu.

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The energy sector (XLE) scored solid gains Monday, +1.7%, as the broader market edged lower, highlighted by Exxon Mobil’s (XOM) +3.2% showing one session after the oil giant reported better than expected Q3 earnings.