DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange were mostly higher in early trading on the first day of December boosted by a softer U.S. dollar index on the back of dovish comments from Federal Reserve Chairman Jerome Powell and speculation over the outcome of this weekend's meeting among OPEC+ members that could result in deeper production cuts.

An OPEC+ decision on January's production rate would come a day before implementation of an EU embargo on Russian oil exports along with a shipping and insurance ban that could lead to a large-scale disruption of Russian oil supplies. European leaders have yet to agree on a price ceiling for Russian oil exports, with reports indicating there is a wide divergence among country leaders on what is considered a fair price. Poland and Baltic states insist on a low price cap in a $20 to $30 range, but shipping nations like Greece and Malta refuse to go below even $70 bbl. Should EU member states fail to agree on a common price level, an insurance ban would go into full effect on Monday (12/5).

A survey of 38 economists and analysts conducted by Reuters found that Brent will hold above a $100 bbl average for the rest of 2022 and into early next year amid uncertainty surrounding Russian export capacities. Faced with those headwinds, OPEC+ will likely choose between a rollover of its current production rate or deeper curbs to its output that could risk another price spike over the winter months. On Oct. 4, Saudi Arabia surprised the markets with an agreement to cut oil production by 2 million bpd, drawing anger from EU and U.S. officials.

Even so, oil prices weakened in November, with Brent crude falling to an $80.61 bbl nearly 11-month low on Monday as protests in China over COVID policies deteriorated the economic outlook for the world's largest oil importer. Last week, Saudi Energy Minister Prince Abdulaziz bin Salman said OPEC+ was "ready to intervene" with further supply reductions if it was required "to balance supply and demand."

In financial markets, the U.S. dollar lost additional ground against a basket of foreign currencies to trade near 105.410 after Fed's Powell hinted at a downshift in the pace of rate hikes that could come as soon as this month.

"It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down," Powell said in a speech at the Brookings Institution in Washington, D.C. Wednesday afternoon.

The assessment signaled the central bank is now ready to step down from its steep 75-point basis increases in the federal funds rate to 50 basis points at its Dec. 14th meeting -- an adjustment the market has widely anticipated. 75% of investors expect the Federal Open Market Committee will raise the federal funds rate by 50 basis points next month compared with 25% who bet on a larger rate hike. The FOMC has raised rates six times so far this year, with four of those increases by a historically large 75 basis points.

Between now and Dec. 14, markets will consider several data points in assessing the state of the economy, beginning with Friday's jobs report and November's inflation report due out next week.

The labor market is still resilient in the face of rising interest rates, with the latest Job Openings and Labor Turnover Summary report showing new job openings remained above 10 million in October, although down by 353,000 from the previous month. Friday's nonfarm employment report is expected to show 200,000 new jobs were added in November, down from the 261,000 new positions reported in October, although still a strong growth rate.

Near 7:30 AM ET, The WTI January contract advanced $1.20 to $81.78 bbl. February Brent futures on ICE traded $1.10 higher at $88.06 bbl. January RBOB futures on NYMEX advanced to $2.4000 gallon, up by $1.53 bbl, and January ULSD contract edging higher to $3.3672.

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