Oil jumps as OPEC+ mulls biggest production cut since pandemic

Oil surged near $83 a barrel on indications the OPEC+ alliance is considering slashing production by more than 1 million barrels a day to revive plunging prices when it meets this week.

A reduction of that magnitude would be the biggest since the pandemic, although OPEC+ delegates said a final decision on the size of the cuts won’t be made until ministers gather in Vienna on Wednesday. West Texas Intermediate rose almost five per cent, putting prices on track for the first gain in three sessions.

“It is interesting that OPEC+ is considering a production cut already when Brent has hardly touched below $85 a barrel,” said Helge Andre Martinsen, senior oil analyst at DNB Bank ASA. “Most of the OPEC+ players, including Russia, are producing below its production due to capacity constraints. Hence, the majority of the group will feel no pain by supporting a production cut.”

Oil fell by a quarter in the three months through September as a slowing global economy sapped demand. Banks including UBS Group AG and JPMorgan Chase & Co. said the Organization of Petroleum Exporting Countries and its allies may need to trim output by least 500,000 barrels a day to stabilize prices. This week’s OPEC+ meeting will be the first in-person gathering since March 2020. The group is deciding on supply for November.

A large output cut may draw criticism from the US and other major consuming-nations, where energy-driven inflation has forced central banks to aggressively jack up interest rates. There is also the specter of European sanctions on Russian oil that are due to come into effect from December. 

“Risk-reward in the oil market is improving if OPEC is ready to act with oil prices just below $90 a barrel,” Martinsen added. 

Prices

  • WTI for November delivery rose 4.3 per cent to $82.91 a barrel at 10:14 a.m. in London.
  • Brent for December settlement gained 4.1 per cent to $88.60 a barrel.

In Asia, China issued new quotas for fuel exports and crude imports last week as it seeks to revive its economy, adding to the bullish outlook for oil. The world’s biggest crude importer has seen energy demand take a tumble due to virus lockdowns and a property slump this year.

© 2022 Bloomberg L.P.

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