Oil fluctuated before an OPEC+ meeting as traders wait to see whether the group will heed or snub a US call to boost crude supplies.
West Texas Intermediate traded above $94 a barrel after swinging between gains and losses. The Organization of Petroleum Exporting Countries and its allies convene virtually later Wednesday, and a Bloomberg survey of traders and analysts suggested the alliance led by Saudi Arabia was more likely to keep output steady in September than agree on an increase.
Investors were also tracking the fallout from a visit by House Speaker Nancy Pelosi to Taiwan that inflamed US-China tensions and reduced appetite for risk assets. Beijing announced military drills, as well as economic curbs against the island, as Pelosi held a press briefing with President Tsai Ing-wen.
Oil sank to the lowest close in more than five months earlier this week, giving up the bulk of the gains seen since Russia’s invasion of Ukraine. That drop has been driven by signs tight physical markets are easing and as investors fret about an economic slowdown. On Tuesday, speakers from the Federal Reserve signalled the bank would go on tightening monetary policy to quell inflation.
“While there could be a small increase, OPEC+ is unlikely to announce a significant production increase given growing recession fears, and the around-$25 decline in oil prices since early June,” said Stephen Innes, managing partner at SPI Asset Management.
US President Joe Biden visited Saudi Arabia last month in an effort to convince OPEC+ to produce more crude after gasoline hit a record. Ahead of this week’s meeting, an administration official talked up the prospect of a positive announcement though some members have been unable to meet output quotas.
Goldman Sachs Group Inc. said it expected OPEC+ to agree to a “modest” increase in output, according to a note from analysts including Damien Courvalin. At present, the global crude market faces a deficit of 2 million barrels a day and stockpiles are near record low levels, the bank said.
Brent crude’s prompt spread – the difference between its two nearest contracts – has narrowed to the lowest since May, suggesting the physical tightness is easing. The differential was at $1.85 a barrel on Wednesday, down from above $4 about a month ago.