WTI buoyant above $84.00 with OPEC+ set to ignore international calls for faster output hikes

• WTI is currently trading above $84.00, up about 1.0% on the day and not far from annual highs at $85.50.
• Expectations that OPEC+ will not cave to international pressure and will continue to slowly increase oil production is supportive.
• Traders should also keep an eye on OPEC+ compliance to its deal, which is currently excessively strong.

Front-month futures of the American benchmark for sweet light crude, called West Texas Intermediary (commonly abbreviated to WTI) has slipped back from earlier session highs of just under $85.00 per barrel in recent trade, though continues to trade above the $84.00 per barrel level, for now, meaning the futures contract is still trading with gains on the day of about 1.0% and is less than $1.50 (or 1.5%) from the annual highs printed last week at close to $85.50.

Prices are higher at the start of the week despite an announcement by Chinese authorities during the Monday Asia Pacific session that they had released gasoline and diesel reserves in order to stabilise prices in some regions of the country, as traders instead focus on this Thursday’s OPEC+ meeting. Commodity strategists do not expect the cartel to deviate from its long-established policy of easing its output cuts at a gradual pace of 400K barrels per month, despite pressure from the international community (particularly from oil importers) to increase output at a faster rate. Over the weekend, US President Joe Biden insisted that oil-producing G20 countries boost output in order to ensure the strength and stability of the post-pandemic global economic recovery, though oil ministers from a number of OPEC+ nations have not taken notice and have, in recent days, thrown their support behind the cartel’s current output cut easing plans.

Analysts Bullish

The tone of analysts and market commentators on oil remains largely bullish; Goldman Sachs on Monday reaffirmed their $90.00 per barrel year-end target for Brent (currently trading just above $84.00), given their expectations for a supply deficit of 2.5M barrels per day. Analysts at oil brokerage PVM agree that the “fundamentals have not changed, and the oil market will remain tight in the near-term”, and a recent poll of 41 analysts and economists conducted by Reuters showed that Brent is expected to average around $80.00 per barrel for the rest of the year. One common theme underpinning the bullishness exhibited by many analysts is expectations that the shortage of natural gas in Europe will feed into higher oil demand as power companies switch strategically from using costlier natural gas to relatively less costly derivatives of crude oil.

Strong Compliance

Another OPEC+-related theme for oil traders to consider is the cartel’s excellent compliance to its current output cut deal; Reuters just published a survey that found that compliance with the pact rose to 118% in September, up from 114% in August. A number of OPEC+’s smaller producers have failed in recent months to keep up with the allowed increases in oil production under the cartel’s pact owing to a variety of idiosyncratic factors; the biggest drop was seen in Nigeria, where output fell by 70K barrels after a pipeline shutdown. Strong compliance is another factor underpinning bullish oil market conditions and a drop back to 100% or even below is one risk to watch, as it could encourage some profit-taking on profitable long-oil positions.