Oil prices rose almost $2 on Tuesday on expectations of a large cut in crude output from the OPEC+ producer group while strong demand and looming sanctions on Russian oil also supported.
Brent crude was up $2.07, or 2.3%, at $90.93 a barrel by 1404 GMT after gaining more than 4% the previous day.
U.S. crude rose $1.82, or 2.2%, to $85.45, extending a more than 5% gain on Monday.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, look set to cut output when they meet on Wednesday, squeezing supply in an oil market that energy company executives and analysts say is already tight because of healthy demand, lack of investment and supply problems. read more
Sources from the group have said that OPEC+, which includes Saudi Arabia and Russia, is discussing output cuts in excess of 1 million barrels per day (bpd).
“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.
Kuwait’s oil minister said OPEC+ would make a suitable decision to guarantee energy supply and to serve the interests of producers and consumers.
Edward Moya, a senior analyst with OANDA, said: “Despite everything going on with the war in Ukraine, OPEC+ has never been this strong and they will do whatever it takes to make sure prices are supported here.”
OPEC+ has boosted output this year after record cuts put in place in 2020 when the pandemic slashed demand.
But in recent months, the organisation 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.
Meanwhile, a senior U.S. treasury official said G7 sanctions on Russia will be implemented in three phases, first targeting Russian oil, then diesel and then lower-value products such as naphtha.
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 bullish factors that could send crude prices higher going towards year-end, including “recovering Chinese demand, OPEC+ further supply cut, the end of the U.S. Strategic Petroleum Reserve (SPR) 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.
“Oil demand … if you look at the latest data, it’s still doing OK. We were expecting some demand destruction; it did not really happen,” said Frederic Lasserre, global head of market research and analysis at Gunvor Group [RIC: RIC: GGL.UL].
U.S. crude oil stocks were estimated to have increased by about 2 million barrels in the week to Sept. 30, a preliminary Reuters poll showed on Monday.
