Oil extends gains on signs OPEC+ edging toward keeping cuts

Oil extended gains toward $42 a barrel in New York as OPEC+ appeared to be closing in on an agreement to delay a planned easing of production cuts from the start of next year.

The producer group is considering keeping additional supply off the market for three to six months, according to several delegates, asking not to be identified because the talks are private.

OPEC+ meets at the end of the month to discuss its output policy and the alliance, led by Saudi Arabia and Russia, has already indicated it might need to defer the planned crude production increase.

Expectations that US crude inventories fell for a fourth week in five also aided sentiment. Stockpiles shrunk by 1.9 million barrels last week, according to a Bloomberg survey before government data on Thursday.

Oil has surged more than 12 per cent this week with most of the gains coming after news of a Covid-19 vaccine breakthrough. However, the global stock rally spurred by the news showed signs of stalling in Asia as investors assess a deteriorating coronavirus outlook in many large economies around the world.

“In the short term, we are looking for more gains for oil,” said Michael McCarthy, chief market strategist at CMC Markets. “The vaccine won’t have any impact on demand until it can be deployed, but the turnaround in market thinking means oil will be able to hold on to these levels.”

Brent’s three-month timespread was 77 cents a barrel in contango – where prompt prices are cheaper than later-date ones. That’s the narrowest contango since July, signaling concerns about over-supply have eased.

OPEC+ is currently keeping about 7.7 million barrels a day off the market and the uncertainty around when a vaccine might be available is complicating its decision on production levels. The group is also facing rising supply from Libya and a potential boost in production from Iran next year.