Oil prices climb as U.S. stimulus negotiations resume

By Andres Guerra Luz and Grant Smith on 10/20/2020

(Bloomberg) --Oil edged higher as U.S. lawmakers negotiated the size of a potential spending bill to boost economic recovery, presenting a rare bright spot for the demand outlook.

Futures in New York rose above $41 a barrel after earlier sliding as much as 1.4% Tuesday. House Speaker Nancy Pelosi told Bloomberg TV that a bill for a compromise stimulus package is being written, raising hopes that lawmakers and the White House may be able to break a months-long impasse. But “mixed messages” between Trump and Senate Republicans -- who have opposed a package of $1.8 trillion or more -- could pose a hurdle, Pelosi said.

“If we don’t have a deal, I struggle to see what the catalyst is to move us higher,” said Peter McNally, global head for industrials, materials and energy at Third Bridge. “People need jobs to support demand in an otherwise seasonally weaker period.”

The market is also weighing uncertainty over whether OPEC and its allies will move forward with its plans to add 2 million barrels a day back onto the market from January. Russian Energy Minister Alexander Novak said that the nation won’t make any decisions about the future of cuts related to the OPEC+ output deal until the group’s meeting next month.

U.S. crude futures have been stuck around the $40 a barrel mark so far this month as governments struggle to control new flareups of the virus. The worsening virus spread in Europe is sapping momentum from an already fragile demand recovery, with Ireland and Wales imposing stringent lockdowns and Italy’s financial center planning a curfew. Meanwhile, traders are looking for signs as to whether U.S. lawmakers can pass another round of fiscal stimulus, which would provide a much-needed boost to demand.

“According to the current OPEC+ deal, we are going to see 2 million barrels a day come on January, and we’re not so sure the market can handle this,” said Bart Melek, head of global commodity strategy at TD Securities. “We’re also going to need more clarity where the fiscal plan is going. So there are a lot of uncertainties out here.”

Prices:

  •          West Texas Intermediate for November delivery, which expires Tuesday, rose 39 cents at $41.22 a barrel at 1:17 p.m. in New York
  •          The more active December contract was up 30 cents to $41.36 a barrel
  •          Brent for December settlement gained 16 cents to $42.78 a barrel

Both Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman and Russia’s Novak offered bearish views on demand at the OPEC+ Joint Ministerial Monitoring Committee meeting on Monday. Prince Abdulaziz bin Salman called on the group to be proactive in the face of uncertain demand. The panel did not discuss if OPEC+ should press on with plans to taper output cuts next year, delegates said.

Yet, UBS Group AG analysts said delegates at the next JMMC meeting on Nov. 17 will likely recommend that an output delay is announced at the full meeting two weeks later.

OPEC+ output cuts are creating difficulties for Iraq’s energy industry, Oil Minister Ihsan Abdul Jabbar said at the “Iraq Petroleum” conference on Tuesday. He said the oil market will be more balanced by the second quarter of next year.

Meanwhile, analysts are expecting U.S. crude supplies to fall for the second straight week, according to a Bloomberg survey, ahead of government data on Wednesday. The industry-funded American Petroleum Institute will report its inventory tally later Tuesday.

Other oil-market news:

  •          Israel and the United Arab Emirates have opened talks over an oil pipeline linking the Red Sea with the Mediterranean and whose operations Israeli officials treat as top secret.
  •          Pioneer Natural Resources Co. is in talks to buy rival U.S. shale driller Parsley Energy Inc., according to a person familiar with the matter.

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