Oil Futures Higher as OPEC+ Production Target Falls Short

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- Nearby delivery month oil futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange continued higher in early trade Tuesday after industry surveys found that Organization of the Petroleum Exporting Countries and 10 producers outside of the cartel led by Russia fell short of their planned production increase last month, with about half of the coalition members unable to raise output, hamstrung with operational issues and years of underinvestment.

Involuntary production outages in Nigeria, Libya, and Angola -- Africa's largest oil producers, held OPEC's output target last month below an agreed to 254,000 barrels per day (bpd), according to private surveys. OPEC pumped 27.5 million bpd in October, a rise of 190,000 bpd from the previous month, but still about 65,000 bpd below the quota allowed under their joint agreement. OPEC+ deal allows for a 400,000-bpd monthly increase that is shared among all 23 members of the alliance.

The biggest decline was posted by Nigeria, down 70,000 bpd from the previous month to a five-month low 1.37 million bpd with the country's key pipeline facing persistent sabotage. Nigeria's output of its main crude grades -- Bonny Light and Forcados -- have been mired with production issues this year, while output of other grades such as Qua Iboe, Brass River, Agbami, Akpo and Egina have also remained consistently low.

Angola has also been unable to reverse a sharp decline in its oil production. In October, production slipped 40,000 bpd to 1.11 million bpd, well below its quota of 1.362 million bpd. Angola's upstream sector appears to have suffered from technical and operational problems at some fields, aggravated by a lack of upstream investment.

Production declines in smaller members offset gains in Saudi Arabia, Kuwait and Iraq, with all three Gulf states believed to have most of OPEC's spare capacity. Saudi Arabia saw the biggest increase month on month, adding 130,000 bpd, from the previous month to 9.79 million bpd in October, the highest level since April 2020 amid strengthening demand for its crude. Saudi Aramco raised its official selling crude prices for all markets in December, nearly doubling the selling price for Asian buyers.

Outside the cartel, Russia was the largest producer, with output standing at 9.96 million bpd -- well above its quota of 9.81 million bpd, and the highest output rate since April 2020, the survey showed. It looks as though Russia also managed to increase its gas production in recent weeks, with Gazprom currently filling storage tanks all across Europe.

Next, investors will turn their focus to U.S. Energy Information Administration Short-term Energy Outlook for November to be released at noon, followed by official production report from OPEC economists later this week.

Declining oil production in some of OPEC's members coincide with bourgeoning demand for distillate fuels, propelled by colder-than-expected temperatures in northern Asia and the reopening of transatlantic air travel. An early start to the winter in China and Korea will likely boost demand for gas-to-oil switching this winter, prompting the front-month WTI and Brent contacts.

In early trade, NYMEX West Texas Intermediate for December delivery added $0.39 to trade at $82.33 per barrels (bbl), and the ICE January Brent contract gained $0.24 to $83.67 bbl. NYMEX RBOB December futures added 2.35 cents to $2.3448 gallon and front-month NYMEX ULSD futures advanced 1.55 cents to $2.4826 gallon.

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

Liubov Georges