- Oil prices rose over 3% Monday with focus on an OPEC+ meeting and Europe’s energy crisis.
- Crude producers will discuss trimming supply after Saudi Arabia floated the idea due to market dysfunction.
- Other factors are Moscow’s halt of gas flows to Europe and the G7’s Russian oil price cap plan.
Oil prices jumped over 3% on Monday as key OPEC+ crude producers meet to discuss an output cut and after Russia’s halt of gas flows via a key pipeline intensified Europe’s energy crisis.
Investors were also weighing the G7’s backing Friday of a US-led plan to impose a price cap on Russian oil.
Members of the Organization of Petroleum Exporting Countries and their allies are eyeing a small reduction of 100,000 barrels a day in supply for October, Reuters reported, citing OPEC+ sources. Leading oil exporter Saudi Arabia floated the idea last month to ease pricing dysfunction in the oil market.
Brent crude futures, the global benchmark, was up 3.9% at $96.60 at last check, while WTI crude futures, the US benchmark, was 3.5% higher at $89.94.
Oil prices have slid in recent months, in part because of growing concerns about a global recession that would knock demand. An OPEC+ cut to supply levels, even if small, could help support oil prices, though traders appear wary of banking on this.
“The group is expected to leave output targets unchanged, but it’s likely that a cut will be at least discussed which, if followed through on, would create more volatility and uncertainty at a time of considerable unease,” Craig Erlam, a senior analyst at OANDA, said.
ING strategists Warren Patterson said it would be difficult to justify a reduction when the market is trading near $100 a barrel. He added it would make more sense for OPEC+ to wait to learn whether the outcome of the Iran nuclear talks would bring more supply to the market, too.
Not all analysts agreed. SEB strategists said they believe the group will cut supply levels as the group is already undershooting its target by 3 million barrels a day.
Meanwhile, Russia said it won’t support OPEC+ crude production cuts, the WSJ reported. Moscow fears the supply implication could weaken its hand in negotiations with Asian buyers, which have been purchasing its crude at discount amid Western energy sanctions.
Another potential boost for oil prices could come from soaring European natural gas prices, which shot up as much as 36% Monday after Russia indefinitely halted the flow of oil through the Nord Stream 1 pipeline into Germany. That could spur a switch from gas to oil by power generators and industrial consumers, previously highlighted by the International Energy Agency.
On the other hand, Russia’s gas shutdown could put more pressure on Europe’s economy, which could pull down demand for oil and in turn drag on prices.
Investors are also weighing Friday’s agreement by G7 ministers to back a US-led plan to set a price cap on Russian oil to reduce Moscow’s energy revenues. The price cap would bar refiners, traders, and financiers from handling Russian crude oil, unless it was sold below the set price.
In response, Russia has said it won’t sell oil to countries that adopt a price cap on its oil, sparking further concerns of a drop in crude supply.
