As OPEC+ members agreed to a modest production cut of 100,000 barrels per day to support prices, oil prices increased by roughly 3% on Monday.
November Brent crude futures closed $2.72 higher at $95.74 a barrel, up 2.92%.
Prices had risen by almost $4 earlier in the session, but they were restrained after the White House stated that U.S. President Joe Biden was committed to taking all necessary measures to bolster energy supplies and lower prices.
During the U.S. Labor Day holiday, U.S. crude increased $2 to $88.85 per barrel, a 2.3% increase after a 0.3% gain in the previous session.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, have reduced their daily production by 100,000 barrels (bpd), yet this represents just 0.1% of the world’s total demand. The committee also decided they could get together at any time before the next scheduled meeting on October 5 to alter production.
More than anything else, the group wants to send a symbolic message to the markets, according to Oanda analyst Craig Erlam, who also added that the 100,000 bpd increase by OPEC+ last month was not thought to be a big deal.
Erlam continued, “What we probably saw from the markets was pricing in much of the worst-case scenario.
Saudi Arabia, a major OPEC producer, hinted last month that output reductions might be considered to address what it perceives as disproportionate drops in oil prices.
Alexander Novak, the deputy prime minister of Russia, claimed that the decision to reduce oil production by Moscow and its OPEC allies was motivated by predictions of weaker global economic growth.
According to Russian Energy Minister Nikolai Shulginov, the nation’s oil production would likely drop by about 2% this year.
According to Caroline Bain, chief commodities economist at Capital Economics, “the bigger picture is that OPEC+ is producing well below its output target and this looks unlikely to change given that Angola and Nigeria, in particular, appear unable to return to pre-pandemic levels of production.”
Since reaching multi-year highs in March, oil prices have declined due to worries that rising interest rates and COVID-19 restrictions in some parts of China could impede global economic expansion and reduce oil demand.
Although the city is still on high alert, lockdown measures in Shenzhen, China’s southern technological powerhouse, were relaxed on Monday as new illnesses appeared to be stabilizing.
Meanwhile, discussions to resurrect the 2015 nuclear agreement between the West and Iran have run into a fresh roadblock. This could potentially boost supply by allowing Iranian crude to return to the market. According to a Western diplomat, the White House on Friday rejected Iran’s demand that the conclusion of U.N. nuclear watchdog investigations be made a condition of any agreement.
The oil minister of Iran stated that more Iranian oil has to be supplied to the international energy market.
Analysts predict a rise in the use of oil in power generation as a result of Russia’s state-controlled Gazprom’s announcement on Friday that it would halt flowing gas via the Nord Stream 1 pipeline due to a problem.
In part because it anticipates gas-to-oil switching in some countries as a result of record natural gas and electricity costs, the International Energy Agency last month increased its prediction for global oil consumption for the year.