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Trader expectations that OPEC and its partners will approve production cuts at next week’s meeting added upward pressure to oil prices, letting benchmarks recoup some of the losses incurred earlier last week.
Both Brent crude and WTI had gained close to 2 percent at the time of writing, with Brent crude trading at $94.10 per barrel and WTI at $88.19 per barrel.
The idea of production cuts by OPEC+ producers was floated last month by Saudi Arabia’s energy minister, Abdulaziz bin Salman who said the paper market for oil had become disconnected from the physical market, implying prices had fallen too low for the actual supply situation.
“They will certainly try to talk up the market as much as possible to better reflect what they see as a tight market, which is exposed to further supply side issues,” ANZ commodity analyst Daniel Hynes told Reuters. He added an agreement on cuts was in no way a certainty.
OPEC is already producing less than it was supposed to, per its own production agreement with the OPEC+ partners for reasons ranging from political instability to technical limitations.
OPEC+ said in a report by the group’s Joint Technical Committee last week the oil market would remain in surplus this year, at an annual level of 900,000 bpd. Demand is seen 400,000 bpd behind supply but the balance may move from surplus to deficit next year, the report said.
“We expect any reduction in supply from OPEC+ to have a material impact on oil prices given the very low inventory levels globally, limited capacity of supply alternatives and ongoing energy crunch in Europe,” Baden Moore from the Australian National Bank told Reuters.
OEPC+ is meeting today (Monday) to talk about production policies. Last week, Russia said it would stop selling oil to countries that implement a price cap on its crude, adding upward pressure on prices provided G7 approves the cap.