Crude has soared this year as economies recover from the pandemic, boosting consumption. An energy squeeze marked by shortages of gas and coal has also stoked oil demand. Still, the Organization of Petroleum Exporting Countries and its allies have loosened supply curbs only gradually, and top exporter Saudi Arabia has maintained a cautious stance ahead of this week’s OPEC+ meeting.
Despite U.S. pressure, the cartel’s preference “is to go with a prudent approach, and that keeps the oil market tighter for now,” said Giovanni Staunovo, a commodity analyst at UBS Group AG.
Over the weekend, China said it would release state reserves of diesel and gasoline to ease shortages. The move is a part of an annual rotation of holdings, but the government has given neither volumes nor a schedule.
The tightness in the crude market is reflected in deeply backwardated pricing patterns, with traders willing to pay a premium for near-term supply. Brent’s prompt spread was $1.26 a barrel on Monday, up from 82 cents a week ago.
OPEC+ is scheduled to gather virtually on Thursday, and may stick with a planned monthly increase of only 400,000 barrels a day despite the escalating concerns from top consumers. Angola and Iraq were the latest members of the alliance to affirm their support for the current conservative stance on output.
Goldman Sachs Group Inc. estimates global demand exceeded supply by 2.5 million barrels a day last month, describing the deficit as “unresolved” in an Oct. 29 note. The bank stuck with a forecast that Brent will hit $90 a barrel.
The increasingly blunt sparring over OPEC+ production comes as world leaders convene for a critical UN conference aimed at limiting the use of fossil fuels. In the run-up to COP26, the G-20 summit in Rome produced only a tepid climate agreement, leaving it to negotiators at the Glasgow gathering to try to achieve a breakthrough.