Published On : 09/04/2023

Oil inches higher on OPEC+ supply cut expectations

By Mohi Narayan

NEW DELHI (Reuters) – Oil prices edged higher on Monday, supported by expectations that major producers will keep supplies tight, and growing hopes that the Federal Reserve will leave interest unchanged to avoid dampening the U.S. economy.

Brent crude November futures was up 3 cents at $88.58 a barrel at 0333 GMT. U.S. West Texas Intermediate crude (WTI) October futures rose 9 cents to $85.64 a barrel.

The slight gains in Asian trade came after both contracts ended last week at their highest levels in more than half a year, having weakened in the two previous weeks.

“Crude oil prices have been primarily driven by the anticipation of additional supply cuts from major oil-producing nations, Russia and Saudi Arabia,” said Sugandha Sachdeva, executive vice president and chief strategist at Acme Investment Advisors.

Sachdeva noted, however, that the steady increase in U.S. oil production could limit further significant gains in price.

Russian Deputy Prime Minister Alexander Novak said on Thursday that Russia had agreed with partners in the Organization of the Petroleum Exporting Countries (OPEC) on the parameters for continued export cuts. An official announcement with details of the planned cuts is expected this week.

Russia has already said it will cut exports by 300,000 barrels per day (bpd) in September, following a 500,000 bpd cut in August. Saudi Arabia is also expected to roll over a voluntary 1 million bpd cut into October.

Speaking at the APPEC conference in Singapore on Monday,

Vitol’s chief executive Russell Hardy said the global crude market should become less tight in the next six to eight weeks because of refinery maintenance, but supplies of sour crude, with higher sulphur content, will stay tight.

“Because of the OPEC+ cuts, there’s not sufficient supply (of sour crude) for all these complex refineries in India, Kuwait, Jizan, Oman and China,” Hardy said.

In the U.S., job growth gained momentum in August, but the unemployment rate climbed to 3.8% and wage gains moderated, suggesting that labour market conditions were cooling and cementing expectations that the Federal Reserve will not put a further dampener on the economy by raising interest rates this month.

Meanwhile in China, manufacturing activity unexpectedly expanded in August, data from Caixin’s manufacturing PMI survey indicated, reducing some of the pessimism about the economic health of the world’s largest oil importer.

A series of economic support measures announced by Beijing last week, such as deposit rate cuts at some of the country’s largest state-owned banks and an easing of borrowing rules for home buyers, have also supported prices.

However, investors continue to await more substantial moves to prop up the country’s embattled property sector, which has been one of main drags on the Chinese economy since its emergence from the pandemic.

(This story has been refiled to add dropped word “keep” in paragraph 1)

(Reporting by Mohi Narayan in New Delhi, aditional reporting by Andrew Hayley in Beijing; Editing by Jamie Freed & Simon Cameron-Moore)

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