Early Asian trading saw oil prices edge up on Tuesday, based off expectations that OPEC+ will agree to a substantial cut in production at their meeting Wednesday. However concerns over a potential global recession limited the rise.
Brent crude futures were up 0.5%, or $0.43, hitting $89.29 per barrel as of 0108 GMT. Brent had gained over 4% in the previous session.
US benchmark West Texas Intermediate was up 0.3%, or $0.22, hitting $83.85 per barrel. In the last session, it had risen over 5%, which was the largest daily gain it had seen since May.
Crude had rallied on Monday, as traders eyed signs of tight supply, and rumors of potential cuts by OPEC+ to support prices, at their first in-person meeting since 2020 on Wednesday. Analysts speculate a production cut of over 1 million barrels per day is likely.
It is further speculated that individual members may perform voluntary cuts on top of that, which could lead to the largest production cut since the early days of the Covid-19 pandemic, according to OPEC sources.
Edward Moya, a senior analyst with OANDA, said in a note to clients, “Despite everything going on with the war in Ukraine, OPEC+ has never been this strong and they will do whatever it takes to make sure prices are supported here.”
OPEC+ boosted production earlier in the year after its record cuts of 2020 in response to the collapse of global demand due to the pandemic. However the Cartel has had trouble meeting the production increases, as many individual members ran up against limits to their production capacities. In July, production quotas were missed by 2.9 million barrels per day.
Goldman Sachs noted that the production cuts being considered are justified by the sharp declines in crude oil prices of late, and this supported their bullish views on oil.
However Tina Teng, an analyst at CMC Markets noted that the upside could be capped by persistent concerns about the state of the global economy, inflation, and the actions of central banks as they tighten monetary policy to contain it, and threaten to cool their national economies. She said, “Uncertainties remain in the global markets, such as bond market turmoil, the sell-off in risk assets, and a skyrocketing U.S. dollar.”
Oil prices have been dropping now for four straight months based on a mix of diminishing demand out of China, which has been slow to emerge from their economic slump following repeated Covid-19 lockdowns, and fears of a global recession, in part produced by central banks raising interest rates. Meanwhile, in the background is a potential escalation by Russia in its conflict with Ukraine, and Western efforts to use sanctions to contain Russia’s ability to sell its crude for a profit.
Estimates indicated US crude stocks increased by roughly 2 million barrels in the week ending September 30th, according to a Reuters report.
