Tuesday saw oil prices gain 2%, propelled by a convergence of factors such as the anticipation of OPEC+ supply cut extensions or deepening, a storm-induced decline in Kazakh oil production, and a weakened US dollar.
Brent crude futures settled up $1.70, or 2.1%, at $81.68 per barrel, while U.S. West Texas Intermediate (WTI) crude saw an increase of $1.55, or 2.1%, settling at $76.41.
Oil prices gain 2% ahead of a crucial online ministerial meeting scheduled for Thursday, where OPEC+ (Organization of the Petroleum Exporting Countries and its allies, including Russia) is set to discuss production targets for 2024. Notably, the talks are anticipated to be challenging, with the possibility of a rollover of the existing agreement rather than a deeper production cut, as indicated by four OPEC+ sources.
Last week’s market turmoil ensued when OPEC+ postponed its meeting to address disparities in production targets for African producers. Walt Chancellor, an energy strategist at Macquarie, emphasized the market’s attention to the potential continuation of Saudi Arabia’s additional voluntary cuts of 1 million barrels per day, stating that an extension into Q2/Q3 2024 could be viewed as a bullish outcome for the meeting.
A potential compromise may involve Angola and Nigeria accepting reduced production targets for a temporary period, provided other countries also lower their targets, according to Carsten Fritsch of Commerzbank. However, resistance from some nations could complicate such a move.
The United Arab Emirates, having had its 2024 production target increased in the previous meeting, is likely to resist Saudi Arabia’s push for lower production quotas from other OPEC+ countries.
Support for rising oil prices also came from the weakened U.S. dollar, an anticipated decrease in U.S. crude inventories, and a significant drop in Kazakh oil output. Kazakhstan’s largest oilfields slashed their combined daily oil output by 56%.
Analysts polled by Reuters estimated a decline of approximately 900,000 barrels in the latest weekly U.S. supply reports. The American Petroleum Institute’s report, scheduled for 2130 GMT, is expected to shed more light on this.
The US dollar hit a three-month low on Tuesday following remarks from U.S. Federal Reserve Governor Christopher Waller, hinting at a potential reduction in the Fed policy rate if inflation continues to decrease. A weaker dollar traditionally boosts oil demand, making dollar-denominated oil more affordable for buyers using other currencies.
Meanwhile, in the Middle East, Israeli forces and Hamas fighters maintained a temporary truce beyond the initial deadline, extended for at least two days to facilitate the release of more hostages.
Source: Reuters
