(Bloomberg) — Oil climbed to an intraday high and OPEC and its allies are expected to consider deeper production cuts when they meet this weekend.
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West Texas Intermediate rose as much as 2.1% to an intraday high of $77.84, a reversal after futures previously fell to their lowest level since 2021. Protests against tough anti-Covid measures erupted among the world’s largest crude importer over the weekend, leading to a broad sell-off in commodities as the week began.
The closest part of the Brent and WTI futures curves turned into contango – a bearish structure indicating oversupply – with physical markets also under pressure. Speculators clearly reduced bullish bets, posting the sixth-largest reduction in net long positions on record for Brent last week.
With the oil market looking increasingly shaky, delegates from the group, who until this week had predicted they would pause to assess the impact of the cuts, now say additional cuts could be an option.
OPEC+ will meet on Sunday to decide on the next level of production as European Union countries negotiate plans for a price cap on Russian crude oil. The weak structure of the market is likely to be a concern for OPEC heading into the meeting, with conditions appearing ripe for another production cut, according to Eurasia Group.
“Given overall market conditions, OPEC+ will seriously consider another production cut at its upcoming meeting, especially if crude oil prices fall well below current levels over the next week,” Eurasia Group analysts say in the report. “Ultimately, the decision will depend on the trajectory of the oil price when OPEC+ meets and how much disruption is visible in the markets due to EU sanctions.”
JPMorgan Chase & Co. cut its outlook for next year, analysts including Natasha Kaneva wrote in a report. The bank cut its forecast for Brent crude by $8 to $90 as it expects Russian production to reach pre-war levels by mid-2023.
Over the weekend, the US decided to hand over Super Major Chevron Corp. to grant a license to resume oil production in Venezuela after sanctions halted all drilling activities nearly three years ago. The sanctions come after Norwegian mediators announced the resumption of political talks between President Nicolas Maduro and the opposition. Still, Chevron’s CEO said it could take years to start refurbishing those oil fields, meaning additional production won’t be immediate.
–With help from Ilena Peng.
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