By Barani Krishnan
Investing.com -- Oil prices rose about 1% Tuesday for their biggest leap in two weeks, as traders responded to hints that producer alliance OPEC+ could announce another production cut at its December meeting to deepen the 2-million-barrel reduction put in place this month.
Expectations that U.S. crude inventories would have fallen last week for a second week in a row also boosted sentiment in oil.
Even so, London-traded Brent crude traded well below this month’s peak of almost $100 a barrel, while New York’s West Texas Intermediate was sharply off November’s $93 high as the Covid rampage in China continued to dominate headlines, raising concerns that capital Beijing might be headed for a full lockdown next.
WTI for delivery in January settled up 91 cents, or 1.1%, at $80.95 per barrel. The U.S. crude benchmark hit a 10-month low beneath $76 on Monday.
Brent was up 94 cents, or 1.1%, at $88.39 by 14:35 ET (19:35 GMT). The global crude benchmark slumped to a nine-month low of under $83 in the previous session.
Crude prices appeared to have bottomed as of Monday after Saudi Energy Minister Abdulaziz bin Salman, who’s in charge of OPEC+, denied a Wall Street Journal report that the 23-nation oil producing coalition was planning a production hike instead to be announced on Dec. 4.
Abdulaziz also said something else that made a bigger impact on oil bulls: “If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”
In OPEC+ speak, it was the clearest sign that another production cut might be coming in November as the alliance intends to restore its pricing power in a market that had lost a stunning 20% of its value over the past two weeks.
Brent went from a low of around $82 a barrel to almost $100 within days of OPEC+’s announcement of the November cut of 2M barrels per day. On Monday though, Brent sank to $82.36 a barrel, its weakest since February, before Abdulaziz’s remarks virtually brought it back into positive territory with a settlement of $87.45.
WTI climbed from around $76 a barrel to about $96 after the November production cut announced by OPEC+. On Monday, the US crude benchmark hit $75.30, its lowest since January, before rebounding on Abdulaziz’s remarks to settle modestly lower on the day, at $80.04.
“The recent oil price slide was overdone and given global economic activity excluding China won’t completely fall off a cliff, prices should continue to stabilize here,” said Ed Moya, analyst at online trading platform OANDA.
But granted, oil bulls and bears were in “a tug-of-war, with China Covid demand concerns getting countered with what appears to be a motivated Saudi Arabia to keep the oil market tight”, Moya added.
Covid control restrictions now weigh on a fifth of China’s economy as infections continue their upward march, defying the central government’s call for more targeted, less disruptive Covid Zero measures, Bloomberg reported Tuesday. It cited 27,307 new cases for Monday alone, just shy of the previous record 28,973 reached in April when Shanghai’s outbreak sparked a surge in infections.
“For China, moving away from ‘zero-Covid’ is easier said than done,” NBC said in another report. Beijing is facing its most severe Covid test yet after the Chinese capital saw the country's first coronavirus deaths in six months, with infections continuing to soar, according to other reports. A full Beijing lockdown could have a disastrous impact on the Chinese economy, experts warn.
Market participants were also on the lookout for U.S. weekly oil inventory data, due after market settlement from API, or the American Petroleum Institute.
The API will release at approximately 16:30 ET (21:30 GMT) a snapshot of closing balances on U.S. crude, gasoline and distillates for the week ended November 18. The numbers serve as a precursor to official inventory data on the same due from the U.S. Energy Information Administration on Wednesday.
For last week, analysts tracked by Investing.com expect the EIA to report a crude stockpile drop of 1.06-M barrels, versus the 5.4-M barrel reduction reported during the week to November 11.
On the gasoline inventory front, the consensus is for a smaller build of 383,000 barrels over the 2.2M-barrel rise in the previous week.
With distillate stockpiles, the expectation is for a drop of 550,000 barrels versus the prior week’s gain of 1.12M.