At the start of the week, oil prices surged, fueled by optimism surrounding a potential discussion among major oil producers to deepen output cuts. Presently, U.S. WTI crude futures trade at $77.40 per barrel.

Potential additional supply cuts

Following a 4% increase in crude benchmarks on Friday last week, Monday saw a continued rise in oil price. Driven by speculation regarding OPEC+’s intentions to mull over further oil supply reductions during its upcoming meeting on Nov. 26. These potential cuts may involve extra voluntary reductions by Saudi Arabia and Russia. Both are committed to extending their supply cuts till year-end, possibly even into early 2024 to bolster prices.

However, it remains uncertain whether the broader OPEC+ group will collectively enforce additional cuts. A more comprehensive reduction coupled with continued voluntary cuts by Saudi Arabia and Russia could potentially eliminate the anticipated supply surplus in the first quarter of 2024.

China’s support for property sector

In a positive turn, China’s central bank upheld its benchmark loan prime rate at historically low levels on Monday, while regulators pledged increased policy backing for the struggling real estate sector, a pivotal driver of the country’s second-largest economy.

Despite China maintaining steady oil imports in the past year, concerns arise due to deteriorating economic conditions, casting doubt on sustained oil demand. Furthermore, China’s accumulation of substantial oil inventories, along with recent stringent regulations imposed on local refineries, has added to the uncertainty surrounding oil demand in the country.

No support from US data

Data released last week indicated a larger-than-expected increase in U.S. oil inventories, while production remained close to record-high levels. These developments further fueled concerns about supply exceeding demand. Additionally, weak economic indicators from major economies raised apprehensions about a slowdown in global oil demand in the coming months.

Traders are closely monitoring signs of demand destruction that may arise from a potential U.S. recession in 2024. Walmart’s recent warning about possible deflation further heightened these concerns.

Israel Hamas conflict to add complexity

The upcoming OPEC+ meeting on Sunday is expected to address supply and demand dynamics. Some OPEC members are particularly concerned about the ongoing war in Israel and the potential for it to escalate into a regional conflict. They are emphasizing the need for oil to continue flowing freely to avoid sudden spikes in oil prices.

In conclusion, oil prices are likely to remain under pressure in the near term due to concerns about worsening demand and ample supply. However, the outcome of the OPEC+ meeting on Sunday could significantly impact market prices.

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