U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed early Monday as traders prepare for the meeting between OPEC and its allies, including Russia, which may set the tone the rest of week.
Bullish traders are hoping the group known as OPEC+ leaves production levels at current levels as the market continues to overcome supply shocks and demand destruction from the COVID-19 pandemic.
Oil prices rose throughout September on the back of supply disruptions and a rise in global demand. This helped drive both WTI and Brent crude oil to three-year highs. Bullish traders are hoping the market continues to build on these gains through growing confidence in a strong pick up in global growth, but first they have to get some help from OPEC+.
OPEC and Allies to Discuss Greater Production
One key topic of discussion at Monday’s meeting between OPEC and its allies is whether to produce more to help lower prices as demand has recovered faster than expected in certain parts of the world.
OPEC+ agreed in July to boost output by 400,000 barrels per day (bpd) every month until at least April 2022 to phase out 5.8 million bpd of existing cuts. Four OPEC+ sources told Reuters recently that producers were considering adding more than that deal envisaged.
The earliest any increase would take place would be November since the previous OPEC+ meeting decided October volumes, according to Reuters.
Soaring Gas Prices Fueling Increased Demand for Crude Oil
In addition to supply disruptions and the global economic recovery, the oil price rally has also been fueled by and even bigger increase in natural gas prices.
Natural gas prices have spiked 300% and are trading around $200 per barrel in comparable terms, prompting switching to fuel oil and other crude products to generate electricity and for other industrial needs.
“The uneven nature of the post-pandemic recovery will keep demand-side uncertainties in play, giving rise to oil price volatility,” Fitch Solutions said in a note.
Prices could firm later in the session if OPEC and its allies decide to stick to their existing agreement to add 400,000 barrels per day (bpd) to the market in November.
There is some risk to the downside if OPEC+ gives into consumer pressures to cool a red hot market by increasing production to 500,000 – 600,000 bpd. However, this new oil wouldn’t hit the market until December. Nonetheless, the announcement of the new terms would be enough to set prices sharply lower.