Oil Rallies on Reports of Russia Pushing OPEC+ to Slash Output

(Bloomberg) -- Oil rebounded after a report that Russia will advocate for OPEC+ nations to cut production, heightening supply concerns as deadlines to implement Russian fuel bans approach. 

West Texas Intermediate rose as much as 3.7% to trade near $79 a barrel, reversing declines of more than 8% over the previous two sessions. Russia is likely to propose that OPEC and its allies reduced output by 1 million barrels a day at the next meeting in October, Reuters reported. Last week, Nigeria’s oil minister said in an interview with Bloomberg the production cartel would cut production if prices fell much further. 

“Russia’s potential recommendation for OPEC+ to reduce output by 1 million bpd is a reminder that the oil producing cartel will do whatever it takes to keep this market tight,” said Ed Moya, senior market analyst at Oanda.

Crude’s rally is gaining support from technical gauges indicating that WTI hit oversold territory yesterday as it fell below $77. Additionally, the market is keeping an eye out for potential disruptions in the Gulf of Mexico as operators shut platforms ahead of Hurricane Ian. 

Notwithstanding the day’s rally, the US oil benchmark remains on track for its first quarterly loss in more than two years on concern that energy consumption will fall, as an aggressive round of central bank rate hikes menace global growth. Some analysts have said the slump may spur the Organization of Petroleum Exporting Countries and allies to consider paring supply. 

UBS and JPMorgan Chase & Co. are among those in the industry that have called on OPEC+ to make supply cuts, which would help stabilize oil markets. Meanwhile. Goldman Sachs Group Inc. slashed its oil forecasts as markets price in a major hit to the global economy.

“A strong USD and falling demand expectations will remain powerful headwinds to prices into year-end,” Goldman analysts including Damien Courvalin wrote in a report. “Yet, the structurally bullish set-up -- due to the lack of investment, low spare capacity and inventories -- has only grown stronger, inevitably requiring much higher prices.

Top traders have also indicated wariness about the recent price pullback. Trafigura Group’s chief economist said commodity markets are potentially moving from cycles to a world of price spikes instead amid sustained underinvestment and a lack of spare capacity. 

However, a parade of Federal Reserve policy makers signaled on Monday that further rate increases are in store, with the need to tame inflation coming at the cost of a slowdown. Among them, Fed Bank of Cleveland President Loretta Mester said that officials will need to keep restrictive policy in place for longer.

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