DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled Monday's session modestly higher. The rise followed affirmations from Saudi Arabia and Russia, OPEC+'s largest oil producers, to continue output and export cuts through the end of December, increasing the likelihood for further extension of voluntary supply cuts into early next year.

On Sunday, Saudi Arabia and Russia reaffirmed their commitment to continue with voluntary 1 million barrels per day (bpd) production and 300,000 bpd export cuts, respectively, through the end of the year, adding that the "decision will be reviewed next month to consider extending the cut, deepening the cut, or increasing production."

Those actions come on top of 3.7 million bpd in production cuts previously agreed to by OPEC+. At the 35th OPEC and non-OPEC Ministerial Meeting held June 4, OPEC+ agreed to production quotas for all of 2024.

CME's OPEC Watch Tool, which uses West Texas Intermediate option prices to calculate the probabilities of OPEC decisions, implies a high probability that OPEC will maintain the June 4 agree to 2024 production quotas when it meets later this month. Considering demand softness for the global oil market and the absence of greater production restraint by OPEC+ members, Saudi Arabia and Russia are viewed as continuing their additional supply cuts that began in July into 2024 to support higher oil prices by limiting inventory builds.

While the market has already speculated Saudi Arabia and Russia would likely extend their additional supply cuts into next year, Sunday's confirmation by the two producers to continue those cuts through the end of December lent support to the speculation. The International Energy Agency forecasts the global oil market will flip to a surplus beginning in the second quarter of 2024 should OPEC+ reverse its production cuts.

Interestingly, Sunday's announcement follows ship-tracking data suggesting Russia rapidly increased oil exports from all ports in October, raising doubts about whether Moscow is complying with the production agreement.

The production pledges from OPEC+ leaders coincide with Saudi Arabia's decision to keep December prices for its flagship crude grade into Asia unchanged from November following five consecutive months of price hikes. The Saudi decision to hold the price of Arab Light for Asia steady in December versus November was largely expected by markets as refining margins in Asia weakened amid softer demand fundamentals.

Saudi Aramco set the price of its flagship Arab Light grade loading for Asia at $4 bbl above the Oman/Dubai average, the Middle Eastern benchmark. Aramco kept the price of all crude grades sold to the United States unchanged from November but slashed all selling prices for the North-Western refiners.

In financial markets, investors continue to reset the path of the federal funds rate next year after Friday's softer-than-expected employment report stoked fear of a looming recession. The U.S. economy added 150,000 jobs in October, missing estimates for 180,000 new jobs, and well below the average monthly gain of 258,000 over the prior 12 months. The national unemployment rate, meanwhile, increased by 1.9% in the reviewed month to 3.9%.

Employment declined in manufacturing as strikes by the United Auto Workers against Detroit's "Big Three" carmakers depressed hiring. New employment in leisure and hospitality slowed to a modest 19,000 jobs after the industry added an average of 52,000 new jobs over the past 12 months.

Further evidence of slackening growth by the U.S. economy could be found in the manufacturing index released by the Institute of Supply Management showing that 75% of manufacturing gross domestic product contracted in October, up from 71% reported in September.

"Of the six biggest manufacturing industries, only one -- food, beverage and tobacco products -- registered growth in October," said Timothy R. Fiore, CPSM, CPM, chair of the Institute for Supply Management Manufacturing Business Survey Committee.

A majority of investors now price in 100 basis points of cuts in the federal funds rate throughout 2024, beginning with a 25-basis point rate cut in June 2024, according to CME's FedWatch Tool. The federal funds rate is now in a 5.25% by 5.5% target range.

At the settlement, WTI December futures jumped to $80.82 bbl, up $0.31, and the international crude benchmark Brent for January delivery advanced $0.29 to $85.18 bbl. NYMEX December ULSD added $0.0286 to $2.9524 gallon and front-month RBOB on NYMEX advanced to $2.2359 gallon, up $0.0349.

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