- Oil rose about 4% Monday after OPEC+ agreed to cut output by 100,000 barrels a day in October.
- Crude producers agreed to trim supply after prices fell and Saudi Arabia floated the idea.
- Also in focus is the G7’s Russian oil price cap plan, after Moscow said it won’t sell to those participating.
Oil prices jumped 4% on Monday after OPEC+ crude producers agreed to cut output quotas and Russia said it won’t sell its exports to countries that abide by a US-led planned price cap.
Members of the Organization of Petroleum Exporting Countries and their allies agreed at a meeting Monday to reduce production by 100,000 barrels a day from October, surprising analysts who widely expected the group to maintain current levels. Leading oil exporter Saudi Arabia floated the idea last month to ease pricing dysfunction in the oil market.
Oil prices have slid about 20% from their June highs, in part because of growing concerns about a global recession that would knock demand. An OPEC+ cut to supply levels, even if small, could help support oil prices.
The group said it was returning quotas back to August levels because its previously agreed addition of 100,000 barrels a day in September was intended for that month only.
Oil market analysts had largely expected no change to supply from OPEC+, giving as one factor the the uncertainty around whether the Iran nuclear talks would add more barrels to the market.
But SEB strategists predicted the group would cut levels as it is already undershooting its target by 3 million barrels a day, creating a disconnect between its cap and actual production.
“Saudi Arabia is currently producing at close to 11 mb/d. It has only produced at this level twice in history (2018 and 2020) and then just for a month or two,” SEB strategist Bjarne Schieldrop noted ahead of the announcement.
Earlier, Russia said it wouldn’t support OPEC+ crude production cuts, the WSJ reported. Moscow fears the supply implication could weaken its hand in negotiations with Asian buyers, which have been purchasing its crude at discount amid Western energy sanctions.
Investors are also weighing Friday’s agreement by G7 ministers to back a US-led plan to set aprice cap on Russian oil to reduce Moscow’s energy revenues. The price cap would bar refiners, traders, and financiers from handling Russian crude oil, unless it was sold below the set price.
In response, Russia has said it won’t sell oil to countries that adopt a price cap on its oil, sparking further concerns of a drop in crude supply.
The rise in European natural gas prices lost momentum in the wake of the OPEC news, having shot up as much as 36% Monday after Russia indefinitely halted the flow of oil through the Nord Stream 1 pipeline into Germany. Dutch TTF futures, Europe’s benchmark natural gas price, were last up about 16% at around 248 euros ($246) per megawatt hour.
Higher gas prices in Europe could spur a switch from gas to oil by power generators and industrial consumers, as previously highlighted by the International Energy Agency.