Oil prices creep higher on tentative US-China hopes

Oil prices crept upwards on Monday, with Brent reaching its highest in more than a month after the previous day's boost from growing expectations of a U.S.China trade deal. Brent crude futures for January LCOc1 rose 69 cents to $62.38 a barrel by 1127 GMT, erasing earlier losses and reaching peaks last seen on Sept. 27. December U.S. crude futures CLc1 also swung back into positive territory, up 53 cents at $56.73 a barrel.

Chinese President Xi Jinping and U.S. President Donald Trump have been in continuous touch through "various means", China said on Monday, when asked when and where the two leaders might meet to sign a trade deal. Earlier, prices jumped by about $2 a barrel after U.S. officials said a deal could be signed this month.

"For all of Friday's feel-good factor, there is no guarantee that they will put pen to paper before the end of the year. This could be problematic, given that U.S. tariffs planned for Dec. 15 remain on the table," PVM analysts said in a note.

Capping gains, euro zone factory activity contracted sharply last month as demand was dented by the trade war and continued lack of clarity over Britain's departure from the European Union, a survey showed. "The oil market faces ample supplies with global demand almost stagnant and supplies rising from the U.S., Canada, Brazil and even the North Sea," said Norbert Rucker, head of economics at Swiss bank Julius Baer.

"We (...) see oil prices trading around $60 per barrel in the near term and lower longer term." In an effort to prop up oil prices, production cuts by the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers since January have reduced oil output by 1.2 million barrels per day.

Yet Russia again fell short of its obligations under the pact, energy ministry data showed. C-RU-OUT

OPEC's output recovered in October from an eight-year low after a rapid rebound in Saudi Arabia's production from attacks on its oil infrastructure in September, offsetting losses in Ecuador and voluntary cuts under the pact. Saudi Aramco finally kick-started its initial public offering, but valuations vary by more than $1 trillion, according to fund managers.

Meanwhile, Abu Dhabi's Supreme Petroleum Council on Monday approved the launch of a new pricing mechanism for Abu Dhabi National Oil Co's flagship Murban crude. Moreover, the carbon bubble "continues to inflate," according to a new report from Carbon Tracker. And yet no major oil company has aligned its operations with the goals set out in the Paris Climate Agreement.

This is not just a matter of bad corporate behavior. The oil industry is charging ahead with oil and gas projects that completely defy climate targets, which means that they are taking on serious financial risk. "Companies who continue to sanction higher-cost projects which do not fit with a lower demand scenario risk destroying significant shareholder value through the creation of stranded assets," Carbon Tracker warned. The more companies delay, the greater risk they take on.

The Paris goals call for limiting warming to "well below" 2 degrees C while striving for 1.5 degrees C. Companies have set out various goals of cutting their own emission, perhaps trimming methane emissions or using more efficient technologies and the like.

But the bottom line is that the carbon budget means the oil market will need to shrink. Carbon Tracker estimates that not only will reserves need to be left in the ground, but major oil and gas companies will need to slash production by 35 percent by 2040 in order for warming to be maintained at 1.6 degrees Celsius.