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Oil Rises On Expectations Of Production Cuts

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Futures contracts for oil rose by more than a dollar on Monday, extending their gains due to the possibility of further supply cuts by OPEC+ to support prices. This comes after four weeks of decline driven by demand concerns. China, the largest oil importer, kept its key interest rates unchanged. The settlement price for the two contracts rose by four percent on Friday after three OPEC+ sources informed Reuters that the producer group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, is set to discuss whether additional supply cuts should be made when they meet on November 26.

Oil prices have fallen by approximately 20% since late September. Investors are also monitoring Russian crude oil trade after Washington imposed sanctions on three ships that sent crude to India. Moscow lifted the ban on gasoline exports on Friday, potentially increasing global supplies of automotive fuel. This decision followed Russia removing most restrictions on diesel exports last month. Baker Hughes, an energy services company, reported on Friday that U.S. energy companies added oil and gas rigs for the first time in three weeks. The number of oil and gas rigs serves as an early indicator of future production.

Prices had suffered losses for four consecutive weeks, influenced by concerns about demand deterioration. Data, especially from the United States and OPEC, indicated that supplies were not as tight as initially expected. Last week’s data showed a larger-than-expected increase in U.S. oil inventories, while production remained close to record-high levels. This was coupled with indications that OPEC producers, excluding Saudi Arabia and Russia, increased crude production in recent months.

Weak economic data from several major economies raised concerns about a global slowdown in oil demand in the coming months. China kept its key lending rate at historically low levels on Monday and injected more liquidity to support the economy. While Chinese oil imports remained stable over the past year, economic conditions deterioration in the country raised doubts about whether oil demand will remain robust. China has also built up high levels of oil inventories and recently imposed stricter restrictions on local refineries.

Traders are closely monitoring Saudi and Russian production cuts as the OPEC meeting approaches. Media reports suggested that Saudi Arabia and Russia are considering additional supply cuts following the recent decline in oil prices, especially after Brent crude recently fell below $80 per barrel. The key producers pledged to continue supply cuts until the end of the year, and it is now expected that they will announce further cuts at the OPEC meeting on November 26. The supply cuts from Saudi Arabia and Russia were a major support for oil prices, pushing Brent to nearly $100 per barrel earlier this year.

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