Oil prices edge up ahead of OPEC+ meeting to discuss supply cuts

Tuesday saw a little increase in oil prices as hopes that OPEC+ may agree to a significant reduction in petroleum output when it meets on Wednesday helped to allay concerns about the state of the world economy.

By 0629 GMT, Brent crude futures had increased by more than 4% from the previous day, up 46 cents, or 0.5%, to US$89.32 per barrel.

The price of US crude futures increased by 30 cents, or 0.4%, to US$83.93 per barrel. The benchmark experienced its greatest daily increase since May last session, rising more than 5%.

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On Monday, oil prices increased as supply fears resurfaced. Investors anticipate that OPEC and its partners, collectively known as OPEC+, will reduce output by more than 1 million barrels per day (bpd) on Wednesday at their first in-person meeting since 2020.

According to OPEC sources, this could be followed by more voluntary cutbacks made by individual members, making it the biggest reduction since the COVID-19 outbreak began.

OPEC+ has never been this strong and will do all it takes to ensure that prices are supported in this market, according to Edward Moya, a senior analyst with OANDA, in a note.

Following unprecedented production cuts implemented in 2020 as a result of demand damage brought on by the COVID-19 pandemic, OPEC+ has increased output this year.

But the organization has recently fallen short of its targets for output growth, missing in August by 3.6 million bpd. “While OPEC+ may declare a significant cut (over 1 million bpd), the actual cut may be substantially smaller. This is because most OPEC+ members produce far less than their desired levels of output, “In a note, analysts at ING stated.

According to Goldman Sachs, the sudden drop in oil prices from recent highs justified the production cut that was being discussed, reinforcing its optimistic oil outlook.

According to Tina Teng, an analyst at CMC Markets, worries over the global economy could limit the upside as investors try to cash in on gains from the previous session.

Teng stated that there are still “uncertainties in the world markets, such as the volatility in the bond market, the sell-off in risk assets, and a surging U.S. currency.”

Oil prices have fallen for four months in a row as COVID-19 lockdowns in the world’s biggest oil consumer China restrained consumption and pressure from rising interest rates and a strong currency on international financial markets. The most aggressive wave of rate increases by major central banks in decades has begun, raising concerns about a slowdown in the world economy.

According to a preliminary Reuters poll released on Monday, the amount of U.S. crude oil stocks rose by almost 2 million barrels in the week leading up to September 30.

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