Oil prices edged higher on Thursday (November 2) as traders remained optimistic about OPEC’s efforts to reduce the supply glut in the market.
December West Texas Intermediate crude rose 0.4 percent to reach $54.54 a barrel on the New York Mercantile Exchange, its highest settlement since 2015. Meanwhile, Brent crude for December delivery on London’s ICE Futures Exchange was up 1 percent, at $59.90 a barrel.
Last year, OPEC signed a historic deal, together with other top producers such as Russia, to reduce the oversupply in the market by cutting 1.2 million barrels per day of oil production.
The deal ends in March of next year, but market watchers are widely expecting the cartel to extend it to cover all of next year to keep prices trading above the key $50 level.
“Compliance as a whole for OPEC [ended] up being rather strong,” said Mark Watkins, a regional investment manager at US Bank. “Now that we’ve flipped the calendar to November we have the OPEC meeting at the end of the month. There’s expectation that there will be positive comments about extending the cuts past March.”
Oil prices have also been supported by a decline in US inventories, despite rising output. According to the US Energy Information Administration, US crude oil inventories fell 2.4 million barrels last week, but production increased to 9.55 million barrels per day.
The organization’s report offers a “supportive inventory picture” with “fairly strong draws to both crude and product stocks,” including distillates “holding noticeably below the five-year average,” said Robbie Fraser, commodities analyst at Schneider Electric.
That said, Goldman Sachs (NYSE:GS) analysts expect year-on-year US oil production to grow by 0.8 to 0.9 million barrels per at year-end 2017. That would put output at 9.6 to 9.7 million barrels per day at the end of the year, close to its highest for at least three decades.
“If [the increasing production] trend shows clear signs of continuation, it could be the signal the market needs to retreat from recent gains, even with a likely sentiment lift coming from the OPEC meeting at the end of the month,” Fraser added.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.