By Myra P. Saefong and William Watts
Oil futures ended Wednesday at their highest price in three weeks after OPEC+ agreed to reduce output by 2 million barrels a day and U.S. data revealed a second straight weekly decline in crude supplies.
Still, traders were unsure of just how much the group of major producers will really manage to cut output given that they have been unable to reach their previous production quotas.
West Texas Intermediate crude for November delivery /zigman2/quotes/211629951/delayed CL.1 -1.08% /zigman2/quotes/209723049/delayed CL00 -1.08% rose $1.24, or 1.4%, to settle at $87.76 a barrel on the New York Mercantile Exchange after posting a gain of 3.5% Tuesday.
December Brent crude , the global benchmark, was added $1.57, or 1.7%, to end at $93.37 a barrel on ICE Futures Europe. Front-month prices for Brent and WTI ended the session at their highest since Sept. 14, according to Dow Jones Market Data.
Back on Nymex, November gasoline declined by 0.5% to $2.6685 a gallon, while November heating oil added 4.3% to $3.6869 a gallon.
November natural gas rose 1.4% to $6.93 per million British thermal units.
Crude prices had spent the first days of the week rallying on expectations OPEC+ — made up of Saudi-led OPEC and other major producers, led by Russia — would deliver a large cut to output at its meeting, held Wednesday in Vienna.
On Wednesday, the group said it agreed to reduce production by 2 million barrels a day starting in November. That’s the largest reduction since the start of the pandemic in 2020, which led to declines in energy demand amid travel restrictions.
“The quota cut agreement is material and sends a clear signal that Saudi Arabia and the group together are willing to stabilize and support oil markets,” said Shin Kim, head of oil supply and production analytics at S&P Global Commodity Insights, in emailed comments.
Even so, analysts note that with several OPEC+ members already producing below their production target, the actual reduction from current output levels would likely be smaller.
The cut “compensates for the lack of oil demand growth from China during 2022,” said Rob Thummel, portfolio manager at Tortoise. He said that China’s oil demand may not show growth this year even though, typically, it climbs by around 600,000 barrels a day on average every year.
Oil prices have “rebounded by 7% in the first few days of the fourth quarter as the current OPEC+ production cut has been priced into oil prices already,” he told MarketWatch.
The OPEC+ group is also under-producing its current quota by 3.5 million barrels per day, with OPEC itself under-producing by 1.2 million barrels per day and allied countries under producing by 2.4 million barrels a day, led by Russia, said Thummel.
Given that, the actual cut to current production is around one million barrels per day, he said.
Crude prices fell last week to an eight-month low but have bounced sharply this week, with WTI up more than 10% and Brent rising more than 9%.
In reaction to the move, U.S. President Joe Biden said he is “disappointed by the shortsighted decision” to cut production while the global economy is dealing with the continued negative impact of Russian President Vladimir Putin’s invasion of Ukraine. Biden, after a controversial visit to Saudi Arabia in July, said at the time he expected the kingdom to boost output .
Also Wednesday, the Energy Information Administration on Wednesday reported weekly declines for U.S. crude, gasoline and distillate inventories .
Domestic crude inventories fell by 1.4 million barrels for the week ended Sept. 30. On average, analysts forecasted a decline of 1.5 million barrels, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute, an industry group, late Tuesday said U.S. crude inventories fell by 1.8 million barrels last week, according to news reports.
The EIA also reported weekly inventory declines of 4.7 million barrels for gasoline and 3.4 million barrels for distillates The S&P Global Commodity Insights survey had called for decreases of 2.3 million barrels for gasoline and 1.8 million barrels for distillates.
Crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 300,000 barrels for the week, the EIA said, while crude stocks in the Strategic Petroleum Reserve fell by 6.2 million barrels to 416.4 million barrels.