Oil markets retained strength over the past week following the OPEC+ JMMC meeting which had sent positive signals to the oil markets. CFTC data shows that money managers increased their net-length in WTI crude contracts by 38.431 million barrels to 332.26 million barrels, the highest in two months, while also increasing their net-length positions in Brent crude contracts by 20.022 million barrels to 140.130 million barrels in the week ending October 20th, the highest in seven weeks.

A cut extension in 2021 is now more likely   
A statement from the Russian President showed that Saudi Arabia and Russia are in agreement about the extension of the current cuts of 7.7 million bpd through 2021, a possibility that we had noted previously.

This possibility has now become very likely as Libya continues to ramp up production, which currently stands at 525,000 bpd. Another Important factor is the likelihood of lockdown measures being imposed in many of the bigger economies around the world including France, Spain, and the UK.
Bearish forces in the markets include the rising concerns about lockdown measures in Europe, rising production from Libya, and rising gasoline stocks in the United States. Last week, a permanent ceasefire agreement was signed between the fighting parties, which is expected to boost the stability of oil production and export operations. As a result, Libyan oil production is expected to rise to 1 million bpd within the next four weeks. 

Canadian producers are also expected to increase production In early 2021 as authorities are looking to lift output restrictions in December. The oil province of Alberta had participated in market-driven cuts by 880,000 bpd, which accounts for 22% of its peak production, to support the OPEC+ 9.7 million bpd cut back in April. Current prices seem sufficient for Canadian production to resume production. Last week, Brent closed at $41.77 down by 2.70% w/w while WTI closed at $39.85 down by 2.52% w/w.

Although statements from the Russian President have partially supported prices by highlighting the possibility of extending current cuts, there still seems to be a lot of uncertainty among OPEC+ members about the details.  An agreement between Saudi Arabia and Russia on the cut extension will also need the support from other countries in the OPEC and OPEC+ group especially those who missed their production targets in 2020. This may prove to be difficult given the fact that many countries including Iraq and Nigeria have struggled to meet their targets in the previous months.

Reference by: Yousef Alshammari