NEW YORK (Reuters) – Oil futures gained over 1% on Monday on hints the Organization of the Petroleum Exporting Countries (OPEC) and its allies may agree to deepen output cuts at a meeting this week and as rising manufacturing activity in China suggested stronger demand.
FILE PHOTO: Oil pump jacks at sunset near Midland, Texas, U.S., August 21, 2019. REUTERS/Jessica Lutz/File Photo
Brent futures for the most active contract for February delivery were up 76 cents, or 1.3%, to $61.25 a barrel by 11:39 a.m. EST (1639 GMT), while U.S. West Texas Intermediate (WTI) crude was up 89 cents, or 1.6%, to $56.06.
That is down a bit from earlier in the day following the release on Monday of data showing U.S. factory activity contracted further in November amid a slump in new orders while construction spending unexpectedly fell.
The U.S. reports came on the heels of upbeat October data on the goods trade deficit, housing and manufacturing that led economists to boost their gross domestic product estimates for the fourth quarter.
OPEC and its allies including Russia, meanwhile, are expected to extend output cuts this week and could increase the size of the curb by at least 400,000 barrels per day (bpd), two sources said.
“There is a discussion about a deeper cut taking place,” an OPEC source said, citing forecasts of oversupply in the first six months of 2020. “There is a big stock build in the first half of the year – we need to keep an eye on that.”
The so-called OPEC+ group has coordinated output for three years to balance the market and support prices. Their current deal to cut supply by 1.2 million bpd started in January and expires at the end of March.
The “Saudis appear intent on maintaining extant output reductions while extending agreement through the middle of next year,” Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois, said in a report.
OPEC’s ministers will meet in Vienna on Thursday and the wider OPEC+ group will gather on Friday.
“Any sign of discontent between the producers will send out negative signals and will put significant downward pressure on the oil price,” said Tamas Varga of oil broker PVM. “We believe this is unlikely to happen.”
It is not certain, however, OPEC+ will agree this week to deepen its curbs. Some in the group are wary measures to support prices will encourage more U.S. production.
U.S. output in September increased to a record 12.46 million bpd, according to a government report on Friday.
“A deeper cut could boost prices, which would bring on more shale output and not help,” the OPEC source said.
Oil also rose on Monday because of an unexpected return to growth in Chinese factory activity in November as domestic demand picked up on Beijing’s accelerated stimulus measures. That is supportive of the oil demand outlook.
Additional reporting by Alex Lawler in London and Aaron Sheldrick in Tokyo; Editing by Marguerita Choy and Jan Harvey