Oil prices jumped $3 a barrel on Monday as OPEC+ considered reducing output by more than one million barrels per day (bpd) to buttress prices with what would be its biggest cut since the start of the COVID-19 pandemic.
Brent crude futures for December delivery rose $2.99 to $88.13 a barrel, a 3.5 percent gain, by 12:50pm ET (16:50 GMT). United States West Texas Intermediate crude rose $3.33, or 4.2 percent, to $82.82 a barrel.
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Oil prices have declined for four straight months since June, as COVID-19 lockdowns in top energy consumer China hurt demand while rising interest rates and a surging United States dollar weighed on global financial markets.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, is considering an output cut of more than one million bpd ahead of Wednesday’s meeting, OPEC+ sources have told Reuters news agency.
That figure does not include additional voluntary cuts by individual members, one OPEC source added.
Most traders were expecting cuts of about 50,000 bpd, said Dennis Kissler, senior vice president of trading at BOK Financial.
If agreed, it will be the group’s second consecutive monthly cut after reducing output by 100,000 bpd last month.
“After a year of tolerating extremely high prices, missed targets and severely tight markets, the [OPEC+] alliance seemingly has no hesitation when it comes to acting rapidly to support prices amid a deterioration in the economic outlook,” Oanda market analyst Craig Erlam said.
OPEC+ missed its production targets by nearly three million bpd in July, two sources from the producer group said, as sanctions on some members and low investment by others stymied its ability to raise output.
While prompt Brent prices could strengthen in the short term, concerns about a global recession are likely to limit the upside, consultancy FGE said.
“If OPEC+ does decide to cut output in the near term, the resultant increase in OPEC+ spare capacity will likely put more downward pressure on long-dated prices,” it said in a note on Friday.
The dollar index fell for a fourth consecutive day on Monday after touching its highest level in two decades. A cheaper dollar could bolster oil demand and support prices.
Goldman Sachs said it believes the OPEC+ supply cut could help remedy the large exodus of oil investors that has left prices underperforming fundamentals.