Oil edges up on prospect of extended OPEC+ supply cuts

Oil prices edged higher on Monday on expectations that OPEC+ would keep supplies tight and speculation that the U.S. Federal Reserve will cease its aggressive interest rate hike campaign. Saudi Arabia has spearheaded efforts to support prices, making large voluntary output cuts as part of a production deal agreed by the OPEC+ producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia. The kingdom is widely expected to extend its voluntary 1 million barrel per day (bpd) cut for a fourth consecutive month into October. Saudi Arabia’s previous announcements have come ahead of its official selling prices, which typically emerge in the first week of the month. 

Russian Deputy Prime Minister Alexander Novak, meanwhile, has said that Moscow had agreed with OPEC+ on the parameters for continued export cuts in October.  Saudi Arabia and Russia could withdraw the cuts at any point, said OANDA analyst Craig Erlam, “but I can’t imagine they’ll be in any rush and risk sending the price tumbling again.” Brent crude futures for November crept 33 cents higher to $88.88 a barrel by 11:33 a.m. (1533 GMT). U.S. West Texas Intermediate crude (WTI) October futures rose 37 cents to $85.92. On Monday Vitol Chief Executive Russell Hardy said he expected the global crude market to ease in the next six to eight weeks because of refinery maintenance, but supplies to refineries in India, Kuwait, Jizan (Saudi Arabia), Oman and China of sour crude, with higher sulphur content, should remain tight given the OPEC+ cuts. The oil market is vulnerable to price spikes due to low inventories and underinvestment in new oilfields, a senior official at global commodities trading firm Trafigura (TRAFGF.UL) said on Monday. 

U.S. August jobs data, meanwhile, has strengthened expectations that the Federal Reserve will pause its increases to interest rates this month. In China, manufacturing activity expanded unexpectedly in August and a series of economic measures to support the country’s post-pandemic recovery have ignited optimism that demand will pick up in the world’s largest oil importer.”President Xi has been about his usual bold and broad announcements of not very much, but the market does appear to have a more receptive and less cynical ear this morning,” said John Evans at oil broker PVM. “His promises of support for the services sector and relaxing of cross-border trade restrictions find sympathy from a market that has fewer drivers with the absence of U.S. participants.”