Oil Surged By 1% As OPEC+ Focus On Supply Cuts Neutralize Recession Fears

Summary

• Saudi Arabia, other OPEC producers disprove output boost talks
• Beijing closes parks and museums as China’s COVID cases surge
• Coming up: API supply report

Oil climbed on Tuesday after major exporter Saudi Arabia said OPEC+ was continuing with output cuts and could take further measures to balance the market, outweighing global recession worries and concern about China’s surging COVID-19 case numbers.

Saudi Arabian Energy Minister Prince Abdulaziz bin Salman on Monday was also quoted by state news agency SPA as disproving a Wall Street Journal report that said OPEC was discussing increasing output and sent prices diving by more than 5%.

Brent crude jumped 1.7%, or $1.45, to $88.90 by 1302 GMT. U.S. West Texas Intermediate (WTI) crude rose 1.5%, or $1.16, at $81.20.

“Crude oil prices are trying to recover their losses,” said Avatrade analyst Naeem Aslam. “That Saudi Arabia has denied there was any discussion about an increase in oil supply with OPEC and its allies has supported the market today.”

The United Arab Emirates, another major OPEC producer, disproved it was holding talks on changing the current OPEC+ deal, while Kuwait said there were no discussions on an output boost.

OPEC, Russia, and other allies, known as OPEC+, convened on Dec. 4, a day before the beginning of European and G7 measures in recrimination for Russia invading Ukraine, which could hold up the market.

On Dec. 5, a European Union ban on Russian crude imports is expected to take effect, as is a G7 plan that will permit shipping services providers to assist to export Russian oil, but only at imposed low prices.

“The critical risk to a price cap policy is the potential for Russian retaliation, which would turn this into an additional bullish shock for the oil market,” Stephen Innes, managing partner at SPI Asset Management, said in a report.

Concerns over oil demand in spite of the U.S. Federal Reserve’s interest rate rises and China’s stringent COVID lockdown policies limited the upside.

Beijing closed parks, museums, and shopping malls on Tuesday and more Chinese cities restarted mass COVID testing. The Chinese capital on Monday cautioned that it is experiencing its most grave challenge of the pandemic and toughened rules for entering the city.

In focus later will be the most recent weekly snapshots of supply in the United States, which are projected to show crude inventories dropped by 2.2 million barrels. The American Petroleum Institute’s report will be published at 2130 GMT.