Next week’s meeting of the world’s largest oil producers to consider extending supply cuts will be key to whether Australian energy stocks can build on their 30 per cent rally this month on hopes an economic recovery will drive a rebound in crude demand.

A sub-committee meeting for OPEC two weeks ago failed to produce a clear indication that current output limits would be maintained.  Bloomberg

The gathering of the Organisation of Petroleum Exporting Countries (OPEC) in Vienna comes as oil prices have been lifted by positive progress on a vaccine, boosting hopes that international travel could restart in 2021.

Over the last four weeks, the price of Brent crude has risen 27.4 per cent to $US47.72 ($64.67) a barrel by late Friday and US crude has climbed 25.2 per cent to $US44.83, the highest levels since March.

The commodity market tailwinds have pushed the S&P/ASX 200 Energy Index 29.8 per cent above its close at the end of October as the re-open trade carried equities sharply higher across the board.

Among the local oil and gas producers, since the start of November, Beach Energy shares have surged 49.6 per cent to $1.77, Santos shares have risen 32.1 per cent to $6.25 and Oil Search shares climbed 42 per cent to close at $3.65 on Friday.

However, oil prices eased on Friday for the first time in a week after UK biotechnology company AstraZeneca released new details of its vaccine trial results, weighing on confidence in its efficacy and, therefore, the hopes of wide-spread inoculation delivering a return to unencumbered energy demand.

Supply-side factors also loom over the market as petrostates jostle with the ongoing uncertainties thrown up by the pandemic and worsening budgetary pressures. The cartel of oil-producing nations and allies, OPEC+, will meet next week to decide whether production limits due to be eased in January will be delayed.

“They’re walking into a situation where clearly demand in Europe is bad; the situation in the US is going to be subdued as well; but you have Asian demand lifting, particularly in China and India,” said Commonwealth Bank commodities analyst Vivek Dhar.

Mr Dhar expects the 13 members of OPEC, along with Russia and the other nations that make up OPEC+, will agree to delay the production limit increase, which would raise output by 2 million barrels per day, or about 2 per cent of global consumption, from the start of January.

But he added there are signs of the fall in state revenue straining appetite for the production limit.

A dire financial situation in Iraq – one of five founding members of OPEC and its second largest producer – has escalated as a result of the diminished oil revenues.

With the government unable to meet commitments such as salaries raising the risks posed by civil unrest, Iraq is expected to contest and extend production cuts in the meetings scheduled for Monday and Tuesday next week.

News was positive for the local energy sector this week.

On Thursday, Origin Energy upgraded its guidance, saying it had experienced stronger-than-expected demand in Asia after the COVID-19-induced softness earlier in the year.

Beach Energy chief executive Matthew Kay was also upbeat on the recovery.

“Beach came out of the last oil price downturn as a bigger, better and stronger company and I have no doubt we are on the path to do the same this time around,” he said.

On Tuesday, the federal government signed off on Santos’ Narrabri Gas Project, with a final investment decision expected in the next 12 to 18 months following an appraisal program.

“As the economy recovers from COVID-19, game-changing projects like Narrabri are critical to creating jobs, driving investment, turbo-charging regional development and delivering more competitive energy price,” said Santos managing director and chief executive Kevin Gallagher.

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