Oil headed for the biggest weekly gain since early March as OPEC+ put the market on course for further tightening ahead of winter.
While West Texas Intermediate dipped toward $88 a barrel on Friday, futures are up around 11% for the week. Time spreads were signalling supply scarcity even before the producer alliance announced its biggest output cut since the start of the pandemic, a move that's set to squeeze the market even more.
The tightening outlook halted the slide in oil prices, which have been weighed down by concerns over a global economic slowdown and aggressive rate hikes by central banks. Russia also reiterated this week that it won't sell oil to countries that adopt a US-led price cap, adding to supply uncertainty.
The move by OPEC+ to cut output "could be a turning point for the market," Australia and New Zealand Banking Group Ltd. analysts including Daniel Hynes said in a note. "Sentiment was already bearish in anticipation of a weakening global economy, and this decision should further tighten the market."
Oil consumers have been given some respite by key OPEC+ member Saudi Arabia, which kept prices for November shipments to Asia steady and lowered those for Europe. Refiners and traders had predicted a hike.
- WTI for November delivery slipped 0.4% to $88.13 a barrel at 7:46 am in London.
- Brent for December settlement dipped 0.4% to at $94.07 a barrel.
- The prompt time spread was $1.72 in backwardation, compared with $1.20 at the start of last week.
US President Joe Biden expressed disappointment in the decision to cut output, while top energy adviser Amos Hochstein said the news had a smaller price impact than the White House had expected. Still, banks from Morgan Stanley to Goldman Sachs Group Inc expect Brent to advance back to $100 a barrel.
The Organization of Petroleum Exporting Countries and its allies plan to reduce output by 2 million barrels a day from November. However, Saudi Arabia's oil minister said the real-world cut will likely be around 1 million to 1.1 million because some members are pumping well below their quotas.
The market is looking "pretty tight" from the fourth quarter onward, said James Whistler, managing director of Vanir Global Markets Pte. in Singapore. The cuts by OPEC+ leave the market vulnerable ahead of European sanctions on Russian oil imports and the likely return of Chinese demand at year-end.
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