Oil held near the highest since November after OPEC+ leaders Saudi Arabia and Russia announced that they would extend supply curbs through the end of the year, tightening the global market.
West Texas Intermediate traded near $87 a barrel after the twin announcements on Tuesday, which drove a 1.3% gain. While traders had anticipated the volume of the cuts, the duration was unexpected.
The strategy from Riyadh and Moscow will help to drain inventories further, while driving the market’s underlying timespreads further into backwardation, a bullish pricing pattern. The gap between WTI’s two nearest December contracts has surged to the widest since mid-2022.
Oil has rallied sharply this quarter after the Organization of Petroleum Exporting Countries and its allies adopted group-wide supply cuts that were then supplemented by additional, voluntary reductions. The production restraints have been implemented just as the International Energy Agency estimates that global crude consumption is running at a record pace.
“Further constraints on oil supply should see oil prices remain well-supported,” ANZ Group Holdings Ltd. said in a note by analysts including Adelaide Timbrell. “The market is likely to see sizable drawdowns in inventories as a result of the restrictions on output.”
Oil’s surge risks stoking a fresh wave of inflation around the globe as it lifts prices, including for fuels such as gasoline and diesel. That could complicate the task facing central bankers just as they try to decide whether they’ve already raised interest rates high enough to restrain the pace of price gains.
In the near term, crude’s gains may pause. WTI’s 14-day relative strength index has been driven into over-bought territory above 70, signaling that prices may be set to retrace.
After the Saudi and Russian moves, attention will fall on stockpiles, with one industry estimate pointing to another draw at the key hub at Cushing, Oklahoma. Official data are due on Thursday, a day later than usual given the US holiday on Monday.
To get Bloomberg’s Energy Daily newsletter direct into your inbox, click here.
Author: Jake Lloyd-Smith