(Bloomberg) — Oil rose as China refined its approach for dealing with Covid-19 after widespread protests against strict curbs, and investors looked ahead to an OPEC+ meeting that may see a supply cut to counter market weakness.
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West Texas Intermediate gained toward $79 a barrel, reversing an earlier drop. Beijing said it would bolster vaccination among seniors, a move regarded by health experts as crucial toward reopening. Prices were whipsawed on Monday following unrest in the world’s top crude importer at the weekend.
The Organization of Petroleum Exporting Countries and its allies including Russia may consider supply cuts when members meet to assess output policy this weekend, potentially deepening curbs agreed the last time members convened in October. The gathering precedes a deadline for European Union curbs on Russian flows as the bloc struggles to agree on a price cap.
Oil has lost about 9% this month as tighter monetary policy sets the stage for a global slowdown that could endanger energy consumption. Those concerns, as well as doubts about demand in China, prompted OPEC+ to announce a major output cut last month, and delegates from the group now say that additional reductions could be an option. Ahead of the meeting, widely watched market metrics point to abundant near-term crude supplies.
“There is near-term risk to the demand outlook,” said Charu Chanana, market strategist at Saxo Capital Markets Pte in Singapore. “OPEC+ is likely to remain more concerned about the technical picture in the oil market turning negative, and that is likely to force the cartel to respond.”
Market watchers are weighing the alliance’s next move. Industry consultant FGE said that the cartel may decide to reduce output by another 2 million barrels at the Dec. 4 gathering to counter a faltering market, while RBC Capital Markets said it expected either no change to supply or a reduction of up to 1 million barrels, depending in part on how prices fared this week.
The OPEC+ meeting is scheduled one day before European Union sanctions on Russian crude flows kick in on Dec. 5, along with curbs on access to insurance and other services. Talks between EU diplomats to agree on a price cap on Russian oil that’s part of the package have stalled. The measure is meant to deprive Russia of revenue following its invasion of Ukraine. The country has said it won’t sell crude to nations abiding by the cap.
Key market metrics have weakened substantially this month, with the prompt spreads — the difference between the two nearest contracts — for both Brent and WTI moving into bearish contango patterns. The gap for Brent was 71 cents a barrel in contango, compared with $1.32 in backwardation two weeks ago.
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