DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and the Brent contract on the Intercontinental Exchange settled Monday's session lower, with U.S. benchmark for December delivery expiring below $80 after reports emerged that the Organization of the Petroleum Exporting Countries and Russian-led partners are considering increasing oil production next month in a partial reversal of a controversial 2 million bpd output cut announced on Oct. 5.

An increase of up to 500,000 bpd spearheaded by Saudi Arabia is now under discussion ahead of OPEC+'s Dec. 4th meeting, according to media reports published on Monday. The move would come a day before the European Union has said it would impose an embargo on Russian oil and plans by G7 nations to launch a price cap on Russian crude shipments, potentially taking some of those supplies off the market. So far, there has been little indication that Russian oil and petroleum products exports are under strain. That's why the decision to raise OPEC+ oil production next month seems controversial.

Chatter of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom's de facto ruler after the Biden administration tried for months to isolate him. The situation remains fluid.

Earlier in the session, oil futures came under selling pressure from reports indicating the Chinese government is considering additional lockdown measures to halt the spread of COVID-19 infections in the country's capital Beijing. On Sunday, China reported 26,824 new COVID-19 cases -- the highest daily number since mid-April, and the sixth consecutive day with over 20,000 new cases.

The latest developments suggest Beijing is quickly walking back its previous announcement earlier this month that it was loosening its zero-COVID policies. It has been confirmed that health authorities in the southern metropolis of Guangzhou imposed a five-day lockdown on Baiyun, the city's most populous district with 3.7 million residents, and home to one of the country's busiest international airports.

It has been estimated that China is currently lacking around 1 million bpd in oil demand because of rolling COVID restrictions.

Last week, unconfirmed reports emerged suggesting that Chinese refiners asked Saudi Aramco to hold off on delivering some of their December crude purchases, heightening concerns over deeper demand destruction in the world's largest oil importer.

Global oil demand could contract by 240,000 bpd in the fourth quarter compared to a year ago, according to an International Energy Agency forecast released last week, with the agency eyeing a downshift in annual demand growth in 2023 to 1.6 million bpd from 2.1 million bpd expected for this year.

At settlement, West Texas Intermediate futures for December delivery eased $0.35 to expire at $79.73 bbl, with the next-month January futures finishing the session a tad above $80 bbl. January Brent futures on ICE declined $0.17 to $87.45 bbl. December RBOB futures on NYMEX added $0.0163 to settle the session at $2.4371 gallon, with December ULSD futures falling $0.0208 to $3.4973 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com