The crude oil market reopened on Tuesday, fueled by expectations of a significant reduction in production by the Organization of Petroleum Exporting Countries and Allies (OPEC+) and a weaker US dollar.
Brent crude rose $2.52, or 2.84 percent, to $91.38 per barrel, while US West Texas Intermediate (WTI) crude rose $2.43, or 2.91 percent, to $86.06 per barrel.
According to anonymous delegates, OPEC+ may be considering a larger cut than previously reported—up to 2 million barrels per day.
The group plans to meet this Wednesday to discuss its November oil production plans. It is assessing the current state of the oil markets and the current state of oil prices, which began to fall in June near levels that some OPEC+ members may find unacceptable.
Despite growing concerns about a severe global recession and the impact on oil demand, the cartel believes that markets largely ignore market fundamentals. Nonetheless, OPEC+ is considering a significant production cut, possibly even greater than previously reported.
The first rumour was that Russia was pressuring OPEC+ to cut production by 1 million barrels per day. Later, the group was said to be considering a production cut of between 500,000 and 1 million barrels per day.
Shortly after, another source stated that OPEC+ was considering a cut of more than 1 million barrels per day. According to the most recent news from OPEC+ delegates, the group is considering yet another option: a 2 million barrels per day cut.
Aside from current oil prices, another factor in determining OPEC+’s production plans for November is the group’s available spare capacity—without which the group would be unable to control the market in the future.
An output cut of that magnitude would come shortly after the United States ends its 1 million barrels per day release of crude oil from its emergency stockpiles and could be welcomed as the group has failed to meet its planned output increases, missing in August by 3.6 million barrels per day.
Also boosting oil prices, the US Dollar was headed for a fifth daily loss against a basket of currencies as investors speculated that the US Federal Reserve might slow its interest rate hikes.
The US central bank potentially easing its interest rate hikes would relieve some worries of a US economic recession that could dampen crude demand.
Meanwhile, 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 December 5.
