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James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply higher on Monday, while taking back nearly half of Friday’s exaggerated sell-off. Today’s early strength is being attributed to rising manufacturing activity in China, which pointed to increasing fuel demand, and hints that OPEC may deepen output cuts at its meeting this week, which could lead to tighter supply next year.

At 10:41 GMT, January WTI crude oil is trading $56.51, up $1.34 or +2.43% and February Brent crude oil is at $61.95, up $1.46 or +2.41%.

China Manufacturing Activity Rises

The demand picture turned a little rosier over the weekend after China reported surprise strength in its manufacturing sector.

A private survey of Chinese factory activity in November came in stronger than expected on Monday, with the Caixin/Markit manufacturing Purchasing Managers’ Index for the month rising to 51.8.

Data released on the weekend showed factory activity in China rising more than expected. The official Purchasing Managers’ Index (PMI) was at 50.2 in November, according to China’s National Bureau of Statistics.

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Daily Forecast

We’re likely to see volatility and possibly two-sided price swings this week as OPEC and its allied producers gear up for what should be an interesting meeting on December 5 and 6.

On Friday, prices plunged partly because the hopes of a bullish outcome from the meeting had faded after reports that Russia’s energy minister signaled that Russia is likely to request a change to the current agreement among OPEC+ to curb output in an effort to boost crude oil prices.

Expectations were for the production cuts to extend until Autumn of 2020 after an expected extension in March or April of next year and it now seems very likely they will end in March.

Additionally, Saudi Arabia is another key player to watch, Tudor, Pickering, Holt & Co. managing director Michael Bradley said. He noted that the meeting might now be “more controversial than expected” since the country is sending signals that it’s “no longer kosher” for countries to exceed their production quotas.

Iraqi’s oil minister said on Sunday that OPEC and its allies will consider deepening their existing oil output cuts by about 400,000 barrels per day (bpd) to 1.6 million bpd.

Based on what I’ve read, the cuts may be deeper, but over a shorter time period. Stay-tuned and prepare for volatility right up to the final announcement.

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