Oil extended a rebound from the lowest level in almost a year on speculation that the Organization of Petroleum Exporting Countries and its allies will deepen supply cuts to respond to weakening global demand.
West Texas Intermediate topped $78 a barrel, after flipping to gains on Monday following a report that OPEC+ may consider supply curbs when members meet to assess output policy this weekend. Earlier in the week’s opening session, crude had hit the cheapest since December as rising Covid-19 cases and demonstrations against virus curbs across China hurt commodities.
Crude’s rebound came as the dollar — which had benefited amid the unrest in China — weakened, aiding commodities priced in the US currency. Fresh protests failed to take place Monday night as authorities deployed a heavy police presence in major cities including the capital, Beijing. Officials will hold a briefing on Covid prevention and control measures at 3 p.m.
Oil has retreated by almost 10% this month as tighter monetary policy sets the stage for a global slowdown that could endanger energy consumption. Those concerns, as well as doubts about demand in China, prompted OPEC+ to announce a major output cut last month, and delegates from the group now say that additional reductions could be an option. Ahead of the meeting, widely watched market metrics point to abundant near-term crude supplies.
“There is near-term risk to the demand outlook,” said Charu Chanana, market strategist at Saxo Capital Markets Pte in Singapore. “OPEC+ is likely to remain more concerned about the technical picture in the oil market turning negative, and that is likely to force the cartel to respond.”
Market watchers are weighing the alliance’s next move. Industry consultant FGE said that the cartel may decide to reduce output by another 2 million barrels at the Dec. 4 gathering to counter a faltering market, while RBC Capital Markets said it expected either no change to supply or a reduction of up to 1 million barrels, depending in part on how prices fared this week.
The OPEC+ meeting is scheduled one day before European Union sanctions on Russian crude flows kick in from Dec. 5, along with curbs on access to insurance and other services. Talks between EU diplomats to agree on a price cap on Russian oil that’s part of the package have stalled. The measure is meant to deprive Russia of revenue following its invasion of Ukraine. The country has said it won’t sell crude to nations abiding by the cap.
Key market metrics have weakened substantially this month, with the prompt spreads — the difference between the two nearest contracts — for both Brent and WTI moving into bearish contango patterns. The gap for Brent was 70 cents a barrel in contango, compared with $1.32 in backwardation two weeks ago.