Oil surged on the possibility that OPEC+ may decide to trim production, and as Europe’s energy crisis worsened after the Group-of-Seven nations endorsed a plan to try to cap the price of Russian crude.
West Texas Intermediate advanced toward $89 a barrel after sinking by almost 7% last week on concerns that slowing global growth and anti-virus lockdowns in China would hurt demand. The OrganiSation of Petroleum Exporting Countries and allies including Russia will convene later Monday to set production levels for October after Saudi Arabia flagged the possibility of a reduction.
Crude has retreated by about a quarter since early June as the global economy slowed and central banks hiked interest rates, erasing all of the gains since Moscow’s invasion of Ukraine. Last week, Russian energy giant Gazprom PJSC said gas flows along a key pipeline to Germany would not resume, just after G-7 ministers had endorsed a US-led initiative to cap the price of Russian oil.
“We view Gazprom’s decision to extend the Nord Stream 1 natural gas pipeline shutdown from the original three days to indefinitely as inextricably linked to the G-7 price cap,” said James Whistler, managing director of Vanir Global Markets Pte. While the intention is to retain Russian supply but hurt Russian income, “the reality is likely the opposite and we may see supply disrupted.”
Ahead of the OPEC+ session — which falls on a US holiday that may thin trading — most market watchers said they expected no change to supply at this point despite the warning from Riyadh. JPMorgan Chase & Co. said output quotas would be rolled into October as summer surpluses would turn into deficits.
WTI for October delivery advanced 2% to $88.60 a barrel on the New York Mercantile Exchange at 11:45 a.m. in Singapore.
Brent for November settlement rose 2% to $94.91 a barrel on the ICE Futures Europe exchange.
Oil market time spreads have been volatile in recent weeks. Brent’s prompt spread — the difference between its two nearest contracts and a widely watched metric for clues on tightness — was $1.34 a barrel in backwardation, compared with $2.16 last Monday and 67 cents two weeks ago.
Crude’s gain on Monday came despite further strength in the greenback, which typically acts as a headwind to commodities priced in the US dollar. The Bloomberg Dollar Spot Index climbed toward a record set last week.