Oil futures rose Tuesday, extending gains a day ahead of a meeting of the Organization of the Petroleum Exporting Countries and their allies, where producers are expected to consider a large production cut.
Price action
- West Texas Intermediate crude for November delivery CL.1, +3.40% CL00, +3.40% CLX22, +3.40% rose $2.07, or 2.5%, to $85.70 a barrel on the New York Mercantile Exchange after posting a gain of 5.2% on Monday.
- December Brent crude BRN00, +3.48% BRNZ22, +3.48% gained $2.29, or 2.5%, to trade at $91.15 a barrel on ICE Futures Europe.
- Back on Nymex, November gasoline RBX22, +5.93% rose 5.1% to $2.6401 a gallon, while November heating oil HOX22, +4.06% was up 3.4% at $3.484 a gallon.
- November natural gas NGX22, +3.94% gained 2.3% to $6.621 per million British thermal units.
Market drivers
Crude-oil prices were rising for a second day as expectations built for OPEC+ to deliver a cut of more than 1 million barrels a day on Wednesday when it holds its first in-person meeting since the start of the pandemic.
Read: Why an OPEC+ oil production cut could be less than meets the eye
“An empirical approach to the present fundamentals leads us to believe benchmark WTI should be trading in the $75-$80 range, although the current unpredictability within the market brings a warranted volatility premium,” said Harry Altham, energy analyst, EMEA & Asia for StoneX Group, in market commentary. “It therefore stands to reason that OPEC+, while analysing the market ahead of the decision, will see an output cut as being justified within current market conditions.”
Analysts said the prospect of a large output cut has shifted the focus away from fears of global recession toward a tight physical market. A large cut in OPEC+’s production target, however, could result in a more modest reduction in actual output, analysts said, noting that the group was already producing well below its current target.
“There are are only a handful of members who will actually need to reduce output if the group announces a large cut,” said Warren Patterson, head of commodities strategy at ING, in a note.
Read: OPEC+ could cut oil production because it’s trying to halt a sharp crude selloff
Citing figures from Bloomberg, Patterson noted that OPEC supply increased by 230,000 barrels a day in September to average 29.89 million barrels a day, with the rise driven largely by Libya, which is exempt from the output agreement and whose output grew by 120,000 barrels a day. But output from OPEC members that were part of the OPEC+ supply deal saw output average 25.53 million barrels a day last month, well below their target of 26.75 million barrels a day, he noted.
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