Oil retreats 3% as OPEC+ weighs biggest output cut since 2020

SINGAPORE, Oct 3 (Reuters) – Oil prices jumped more than 3% in early Asian trade on Monday as OPEC+ considered cutting production by more than 1 million barrels a day for the biggest reduction since the pandemic, in a bid to support the market.

Brent crude futures were up $2.51, or 3%, at $87.65 a barrel by 0206 GMT, after settling 0.6% on Friday. U.S. West Texas Intermediate crude was also up 3%, or $2.39, at $81.88 a barrel, after the previous session’s loss of 2.1%.

Oil prices have fallen for four straight months since June, as COVID-19 shutdowns in top energy consumer China hurt demand, while rising interest rates and a rising US dollar weighed on global financial markets.

To support prices, the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, is considering an output cut of more than 1 million bpd ahead of Wednesday’s meeting, OPEC+ sources told Reuters. read more

If agreed, it would be the group’s second consecutive monthly cut after cutting production by 100,000 bpd last month.

However, OPEC+ missed its output targets by nearly 3 million bpd in July, two sources from the producer group said, as sanctions against some members and low investment by others hampered its ability to increase production. read more

“Anything less than 500,000 barrels a day would be shrugged off by the market. Therefore, we see a significant chance of a cut as large as 1 million barrels a day,” ANZ analysts said in a note.

Although spot Brent prices could strengthen further in the near term, concerns over a global recession are likely to limit upside, consultancy FGE said.

“If OPEC+ decides to cut production in the near term, the resulting increase in OPEC+ spare capacity is likely to put more downward pressure on long-term prices,” it said in a note on Friday.

Also on Friday, China issued its largest oil product export quota this year and increased import quotas for independent refiners. read more read more

State and private refineries can export as much as 15 million tonnes of gasoline, diesel, jet fuel and low-sulphur heating oil, adding much-needed supplies to global markets to replace Russian exports embargoed by the EU in February.

However, analysts and traders said some of China’s exports are likely to spill over into early 2023 as refiners will need time to ramp up.

Reporting by Florence Tan; Editing by Clarence Fernandez

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