Oil rebounds 3% as OPEC+ imposes biggest production cut since 2020

SINGAPORE (Reuters) – Oil prices jumped more than 3% in early Asian trading on Monday, as OPEC+ considers cutting production by more than 1 million barrels per day, its biggest cut since the pandemic, in a bid to prop up the market.

Brent crude futures rebounded $2.36, or 2.8%, to $87.50 a barrel by 0622 GMT, after settling at 0.6% on Friday. US West Texas Intermediate crude rose 2.9%, or $2.27, to $81.76 a barrel, after losing the previous session’s 2.1%.

Oil prices have fallen for four consecutive months since June, as the COVID-19 shutdown in China, China’s largest energy consumer, hurt demand, while higher interest rates and a stronger US dollar weighed on global financial markets.

To support prices, the Organization of the Petroleum Exporting Countries (OPEC) and its allies, the group known as OPEC+, are considering a production cut of more than 1 million barrels per day ahead of Wednesday’s meeting, OPEC+ sources told Reuters. Read more

If agreed, this would be the group’s second consecutive monthly cut after cutting production by 100,000 barrels per day last month.

But analysts expect the hit from the cut to be significantly lower than the headline figure, as many OPEC+ members produce well below their quotas.

With so few producers reaching production targets, they alone will likely have to cut, ING analysts said in a note.

Two OPEC sources said that OPEC+ missed its production targets by about three million barrels per day in July, as sanctions imposed on some members and reduced investment by others hampered its ability to increase production. Read more

“Anything below 500,000 bpd will be ignored by the market,” ANZ analysts said in a note. “So we see a significant opportunity for a significant cut of up to 1 million bpd.”

Advisory firm FGE said that while spot Brent prices could boost further in the near-term, concerns about a global recession are likely to limit the upside.

“If OPEC+ decides to cut production in the near term, the resulting increase in OPEC+ spare capacity is likely to put further downward pressure on long-term prices,” it said in a note on Friday.

Also on Friday, China released its largest oil product export quotas this year and increased crude import quotas for independent refineries. Read more Read more

State and private refineries can export up to 15 million tons of gasoline, diesel, jet fuel and low-sulfur fuel oil, adding much-needed supplies to global markets to replace Russian exports that were banned by the European Union in February.

However, analysts and traders said some of China’s exports are likely to extend into early 2023 as refineries will need time to pick up.

The dollar index fell for the fourth consecutive day on Monday, after touching its two-decade peak. A cheaper dollar can boost the appetite of oil buyers who use other currencies and support oil prices.

(Reporting by Florence Tan and Moyo Xu); Editing by Clarence Fernandez

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