(Bloomberg) -- Oil extended gains toward $42 a barrel in New York as OPEC+ closes in on an agreement to delay a planned easing of production cuts from the start of next year.
The producer group is considering keeping additional supply off the market for three to six months, according to several delegates, asking not to be identified because the talks are private. OPEC+ meets at the end of the month to decide on its production policy. Expectations that U.S. crude stockpiles fell for a fourth week in five also aided sentiment. Government data is due Thursday.
Oil has rallied almost 12% this week with most of the gains coming after news of a breakthrough on a Covid-19 vaccine. While it’s a positive step, a vaccine is still some time away and the immediate outlook for demand is bleak as a resurgent coronavirus in the U.S. and Europe crimps consumption. OPEC once again cut estimates for the amount of crude it will need to provide in the coming year due to the flaring pandemic.
“In the short term, we are looking for more gains for oil,” said Michael McCarthy, chief market strategist at CMC Markets. “The vaccine won’t have any impact on demand until it can be deployed, but the turnaround in market thinking means oil will be able to hold on to these levels.”
Brent’s three-month timespread was 79 cents a barrel in contango -- where prompt prices are cheaper than later-date ones. That’s the narrowest contango since July and compares with $1.09 a week earlier, signaling concerns about over-supply have eased.
OPEC+ is currently keeping about 7.7 million barrels a day off the market and the uncertainty around when a vaccine might be available is complicating its decision on production levels. The group is also facing rising supply from Libya and a potential boost in production from Iran neat year.
Saudi Arabia and Russia, leaders of OPEC+, have already indicated publicly that they are thinking about easing production cuts in January as the resurgent pandemic hits fuel demand.
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