Oil prices rose on Thursday as investors prepared for the OPEC+ meeting, which could result in further supply cuts. The Organisation of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are expected to discuss reducing production further to support prices.
Brent crude futures for January delivery were up 65 cents, or 0.78 per cent, to $83.75 a barrel, with the front-month Brent contract expiring later in the day. The more active February Brent contract gained 57 cents, or 0.69 per cent, at $83.45 a barrel.
U.S. West Texas Intermediate (WTI) crude futures also rose, gaining 55 cents, or 0.71%, to $78.41 a barrel. The price of WTI has been closely tracking Brent in recent weeks, with the two benchmarks moving in tandem.
The delegates from OPEC+ countries, speaking to Reuters on condition of anonymity, have indicated that additional output cuts of more than one million barrels per day (bpd) are likely to be agreed upon at the upcoming OPEC+ meeting. The cut is expected to be led by Saudi Arabia, which has been voluntarily cutting production by one million bpd since September. Other members of the OPEC+ alliance are also expected to make smaller cuts.
The cuts are expected to be aimed at stabilising oil prices, which have fallen in recent months due to concerns about a global economic slowdown and rising interest rates.
The pledge from Saudi Arabia to extend its voluntary cut has been described as “really important” by Investec analyst Callum Macpherson, who noted that it could prevent a collapse in any potential deal. However, investors are still waiting for a formal announcement from the OPEC+ meeting, as well as details on how the additional cuts will be distributed among the member countries and how long they will last.
Macpherson said that these are crucial details, as they will determine the impact of the cuts on the oil market and the trajectory of prices.
The delay of the OPEC+ meeting until the day of the U.N. climate conference in Dubai has been seen as a strategic move by some analysts. By holding the meeting at the same time as the conference, the OPEC+ members may be hoping to send a message to world leaders about the importance of oil prices and the role of the organization in ensuring global energy security.
Tamas Varga of oil broker PVM has noted that while any cuts implemented by OPEC+ may send prices higher in the immediate future, the long-term impact of the cuts is more difficult to predict.
One of the main concerns about the effectiveness of any additional cuts is compliance among the OPEC+ member countries. Tamas Varga noted that the compliance rate has historically been an issue, with some countries failing to meet their production quotas.
Varga also pointed out that the global oil balance may not be as tight as the OPEC+ estimates, given the latest commercial inventory data from the U.S. and the impact of high interest rates on demand.