Oil forges higher as OPEC+ must ‘do something’ at Vienna meeting

Oil rose after its biggest one-day gain since May as the market looked to OPEC+ to deliver a substantial cut in supply.

West Texas Intermediate climbed above $84 a barrel after rallying by more than five per cent on Monday. The Organization of Petroleum Exporting Countries and its allies including Russia will consider reducing output by more than 1 million barrels a day when they meet on Wednesday, according to delegates. On Tuesday, Saudi Aramco’s chief executive officer warned that that global oil market’s spare capacity is extremely low.

If they don’t do anything, the prices will slide to $80 or lower, the market is bearish,” Fereidun Fesharaki, founder and chairman of FGE, told Bloomberg Television in an interview. “They have to do something, they have no choice. They want to protect something, which is about $90” a barrel, he said.

Oil slumped 25 per cent last quarter as central banks including the Federal Reserve raised rates aggressively to combat runaway inflation. The shift to tighter monetary policy spurred speculation of a sharp slowdown in global growth, hurting demand for commodities that were also hit by a surging dollar, though some of that strength cooled on Tuesday.

In recent days, the market’s structure has firmed for the main oil futures contracts, indicating a more robust environment for crude and refined fuels. WTI’s nearest timespread closed at its strongest since early August, while the same gauge for European diesel touched its firmest level since July.

Prices

  • WTI for November delivery rose 0.9 per cent to $84.39 a barrel at 10:45 a.m. in London.
  • Brent for December settlement gained 1.1 per cent to $89.82 a barrel.

The OPEC+ gathering in Vienna will be the group’s first in-person meeting since the pandemic forced the group online. In addition, ministers plan to hold a press conference after their session, the first such briefing since last year.

At present, many OPEC+ nations are unable to meet their current production quotas in full given supply constraints. That means that any agreement on a headline reduction in collective output – known as a paper cut –would not lead necessarily to a commensurate drop in actual barrels given the mismatch.

“A sizable trimming of output for November has quickly been built in the prices,” said Tamas Varga, an analyst at PVM Oil Associates. “The two major crude contracts gained around $4 a barrel and their backwardations widened markedly,” on Monday, he said, indicating market expectations of a large supply cut. 

© 2022 Bloomberg L.P.

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