Diesel benchmark moves higher; OPEC+ group prepares for key meeting next week

Although the various conflicts Israel has found itself embroiled in with Hamas in Gaza and Hezbollah in Lebanon have not taken any oil production off the market, futures prices Monday were said to have declined on reports Israel and Hezbollah were nearing a ceasefire agreement. 

But Hezbollah is a proxy for Iran. With the Trump administration set to regain power in two months, the prospect of renewed sanctions against Iran, which is a major crude producer and exporter, had been a bullish factor in the market. 

However, a Hezbollah-Israel deal could be seen as one step short of a temporary truce between Israel and Iran, which helped drive the price of oil lower Monday.  

Bloomberg quoted Rob Thummel, senior portfolio manager at Tortoise Capital, as saying of a lower possibility of sanctions against Iran: “If Iran’s going to keep the supply on the market, then that means you’ve got a fair amount of supply next year potentially coming online.”

Oil markets are preparing for the Dec. 1 meeting of the OPEC+ group, which will take up the issue of whether to begin rolling back its schedule of 2.2 million b/d in production cuts in effect since last year. 

While the total amount of output cuts from the group never reached that mark – they are down about 1 million b/d this year – the discipline shown by the group in keeping oil off the market has been enough to bring spare capacity to produce crude oil up to an estimated 5 million barrels a day or more, which outside of COVID is the largest ever.

The current policy in place is that the OPEC+ nations are to begin rolling back those cuts Jan. 1. But world crude benchmark Brent averaged about $78.90/b in August. On Monday, it settled at $73.01/b, throwing into doubt whether those increases in output will go through.

According to media reports, global bank HSBC said last week OPEC+ will keep all its cuts in place until April rather than starting to pare them back at the start of the year. 

What the OPEC+ group is facing was summed up in a recent report by the Bank of America Merrill Lynch research team led by Francisco Blanch, which on Sunday released its commodities outlook report for 2025. 

OPEC+, consisting of the members of OPEC and a group of non-OPEC oil exporters led by Russia, needed to cut its output over the last 18 months or more because of growing supplies from several non-OPEC producers, but four in particular: the U.S., Guyana, Brazil and Canada. 

That situation is likely to stay in place into 2025, BOA said. “With non-OPEC supply poised to increase meaningfully in 2025 and demand growth likely to remain steady (or possibly drop materially, if Trump tariffs come into play), we see an oil market surplus as incremental supply outpaces the projected global demand increase,” the bank’s forecast said “Thus, oil markets have already been trending lower for some time, only gaining occasional support from geopolitical tensions in the Middle East.”

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