By Myra P. Saefong and William Watts
Oil futures rose Tuesday, with U.S. prices settling at their highest in almost three weeks, a day ahead of a meeting of the Organization of the Petroleum Exporting Countries and their allies, where producers are expected to consider a large production cut.
West Texas Intermediate crude for November delivery /zigman2/quotes/211629951/delayed CL.1 -3.52% /zigman2/quotes/209723049/delayed CL00 -3.52% rose $2.89, or 3.5%, to settle at $86.52 a barrel on the New York Mercantile Exchange after posting a gain of 5.2% on Monday. That was the highest front-month finish since Sept. 14, according to Dow Jones Market Data.
December Brent crude gained $2.94, or 3.3%, to end at $91.80 a barrel on ICE Futures Europe, the highest since Sept. 19.
Back on Nymex, November gasoline rose 6.8% to $2.683 a gallon, while November heating oil added nearly 5% at $3.5358 a gallon.
November natural gas gained 5.7% to $6.837 per million British thermal units after losing 4.4% on Monday.
Crude-oil prices rose for a second day as expectations built for OPEC+ to deliver a cut of more than 1 million barrels a day on Wednesday when it holds its first in-person meeting since the start of the pandemic.
“An empirical approach to the present fundamentals leads us to believe benchmark WTI should be trading in the $75-$80 range, although the current unpredictability within the market brings a warranted volatility premium,” said Harry Altham, energy analyst, EMEA & Asia for StoneX Group, in market commentary. “It therefore stands to reason that OPEC+, while analysing the market ahead of the decision, will see an output cut as being justified within current market conditions.”
The oil-producing group is considering an output reduction of as much as 2 million barrels a day, and may also discuss smaller reductions from 1 million to 1.5 million barrels a day, Bloomberg reported Tuesday , citing delegates.
Analysts said the prospect of a large output cut has shifted the focus away from fears of global recession toward a tight physical market. A large cut in OPEC+’s production target, however, could result in a more modest reduction in actual output, analysts said, noting that the group was already producing well below its current target.
“There are are only a handful of members who will actually need to reduce output if the group announces a large cut,” said Warren Patterson, head of commodities strategy at ING, in a note.
Citing figures from Bloomberg, Patterson noted that OPEC supply increased by 230,000 barrels a day in September to average 29.89 million barrels a day, with the rise driven largely by Libya, which is exempt from the output agreement and whose output grew by 120,000 barrels a day. But output from OPEC members that were part of the OPEC+ supply deal saw output average 25.53 million barrels a day last month, well below their target of 26.75 million barrels a day, he noted.