Crude oil reached a nine-month highafter the OPEC+ group of producers, following another nail-biting week of discussions, agreed on a compromise deal that will see production rise in stages over the coming months, starting with 500,000 barrels/day in January. With the expected vaccine-driven recovery in global fuel demand this deal will go a long way to ensure the price of oil remains supported until it can stand on its own feet.
The fact that the market rallied despite having priced in a postponement of the previously agreed 1.9 million barrels/day production increase was due to the flexibility of the deal. Meaning that production can be raised but also cut back should the recovery turn out to be slower than expected. Overall, analysts are now expecting that the road towards a balanced market has been shortened and on that basis expectations for higher crude oil and fuel prices into 2021 have been given a boost.
Adding to these supportive developments, a cut this year by the oil majors of more than $80 billion in longer-term capital spending will likely start to feed through to higher oil prices in 2022 and beyond. Unless this past year has changed dramatically the way global consumers will work and travel and thereby consume fuel going forward, only time will tell.
Brent is likely to print $50/b sooner rather than later with already strong Asian demand eventually being joined by others once the Covid-19 cloud lifts. Just how much further it may rally in the short term depends on how Europe and especially the U.S. tackle the current and not-yet-under-control second wave of the Covid-19 outbreak.
Gold recovered strongly from the Thanksgiving drubbing which took the price down to, but not below key support at $1763/oz, the 50% retracement of the March to August surge. While total holdings in exchange-traded funds backed by bullion continued to be reduced, now down 3.7% or 411,000 ounces following the November 9 vaccine announcement, renewed support from a weaker dollar, rising inflation expectations and stimulus talks in the U.S. all helped turn the metal around.