Oil jumps 3% ahead of OPEC+ meeting on supply woes

Oil has jumped by nearly $3 a barrel on Tuesday on expectations that Wednesday’s OPEC+ meeting could decide a large cut in crude output as the retreating US dollar made oil purchases cheaper.

OPEC+ will consider output cut on Wednesday’s meeting. The move could put supply under pressure while the energy market is already tight due to healthy demand, a lack of investment and supply-related problems.

Brent crude settled at $91.80 a barrel, up $2.94, or 3.3%. US West Texas Intermediate (WTI) crude closed $2.89, or 3.5%, higher at $86.52 a barrel.

On Wednesday, OPEC+, including Russia, is discussing output cuts in excess of 1 million barrels per day (bpd). Oil extended gains after news reports noted that OPEC+ was considering a 2 million-bpd cut.

“We expect a substantial cut to be made, which will not only help to tighten the physical fundamentals but sends an important signal to the market,” Fitch Solutions said in a note.

OPEC+ boosted output this year after record cuts implemented in 2020 when the pandemic slashed demand. In recent months, the group has failed to meet its planned output increases, missing in August by 3.6 million bpd.

The production target cut being considered is justified by the sharp decline in oil prices from recent highs, said Goldman Sachs, adding that this reinforced its bullish outlook on oil.

The US Treasury has recently noted that G7 sanctions on Russia will be implemented in three phases, first targeting Russian oil, then diesel and then lower-value products. Sanctions from the G7 and the European Union, which is opting for a two-phase ban, are set to begin on Dec. 5.

Swiss lender UBS said it sees several factors that could send crude prices higher toward the end of the current year including recovering Chinese demand, OPEC+ further supply cut, the end of the US Strategic Petroleum Reserve release and the upcoming EU ban on Russian crude exports.

Top oil traders also said at the Argus European Crude Conference in Geneva on Tuesday that economic headwinds have not yet caused significant erosion of global oil demand. US crude oil and fuel stockpiles fell by about 1.8 million barrels for the week ended September 30, according to market sources citing American Petroleum Institute figures.