Oil up over 2% on tighter supply while Opec+ talks limit gains

API data shows fall in US crude stocks; Optimism on China fuel demand, economic outlook evident; IEA expects Russian crude output to fall by 2m bpd by March

By Reuters

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The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, US. — Reuters
The sun sets behind a crude oil pump jack on a drill pad in the Permian Basin in Loving County, Texas, US. — Reuters

Published: Wed 30 Nov 2022, 5:26 PM

Last updated: Wed 30 Nov 2022, 6:03 PM

Oil prices rose by over $2 on Wednesday on signs of tighter supply, a weaker dollar and optimism over a Chinese demand recovery.

But the likelihood that Opec+ will leave output unchanged at its upcoming meeting limited the gains.

Brent crude futures rose $2.22, or 2.67 per cent to $85.25 per barrel by 1340GMT. The more active February Brent crude contract rose by 3.35% to $87.07.

US West Texas Intermediate (WTI) crude futures climbed $2.68, or 3.43 per cent, to $80.88. Support followed expectations of tighter crude supply.

US crude oil stocks dropped by 7.9 million barrels in the week ended November 25, according to market sources citing American Petroleum Institute figures on Tuesday.

Official figures are due from the U.S Energy Information Administration on Wednesday.

And the International Energy Agency expects Russian crude production to be curtailed by some two million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.

On the demand side, further support came from optimism over a demand recovery in China, the world’s largest crude buyer.

China reported fewer Covid-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions.

Guangzhou, a southern city, relaxed Covid prevention rules in several districts on Wednesday.

A fall in the US dollar was also bearish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.

Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.

Capping gains, the Opec+ decision to hold its December 4 meeting virtually signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters on Wednesday.

“Market fundamentals favour another cut, especially given the uncertainty over China’s Covid situation ... Failure to do so risks sparking another selling frenzy,” said Stephen Brennock of oil broker PVM. — Reuters

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