By Kevin Baxter 

Oil prices gained Monday as more positive sentiment emanating from OPEC regarding proposed production cuts seeped into the market over the weekend.

January deliveries of global crude benchmark Brent were up 1.32% at $47.49 a barrel while its U.S. counterpart West Texas Intermediate gained 1.18% to $46.24.

Prices were buoyed by news that the energy ministers from two of the Organization of the Petroleum Exporting Countries' most reluctant members in terms of cutting output, Iraq and Iran, were backing the proposal. The cartel meets Nov. 30 when it will formally decide on strategy for the first half of 2017.

Most observers have welcomed the comments, but many have warned that nothing other than vague statements backing the cuts had been said.

OPEC now faces a difficult choice at the meeting regarding output cuts, with neither outcome being particularly beneficial to the cartel, according to London-based Barclays bank. In a note, analysts stated that cutting production would give prices a short-term boost, but it would be U.S. producers that reaped the benefit in the mid-term, by using the fillip to lock-in higher prices for future production.

It added that a hands-off approach would allow the market to balance naturally and keep many U.S. producers at bay for the time being, but would also hurt financially.

"We still expect OPEC to agree to a face-saving statement. It would showcase agreement, provide flexibility, and not veer too far from what countries had planned initially for [the first half of 2017]," said Barclays.

The New York-based Morgan Stanley said that any OPEC deal would almost certainly prompt some short-covering, a market term for buying back a commodities contract for a lower price than it was sold, which could then kick-start a rally. It added that at current prices, the downside risk for OPEC not agreeing to cuts is limited as a "fair amount of skepticism" has already been priced in.

Meanwhile, the U.S. oil trading window is only three days this week due to the Thanksgiving holiday on Thursday and Friday. This means that global trading activity in WTI will be lower, which could lead to some volatility over the final two days of the week, especially if there are major announcements from OPEC.

Nymex reformulated gasoline blendstock futures--the benchmark gasoline contract--fell 1.41% to $1.36 a gallon, while December diesel traded at $1.48, up 1.2%.

ICE gasoil futures changed hands at $432.50 a metric ton, up 2%.

Write to Kevin Baxter at Kevin.Baxter@wsj.com

 

(END) Dow Jones Newswires

November 21, 2016 05:52 ET (10:52 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.