(Bloomberg) — Oil jumped on the possibility that OPEC+ could decide to cut production and as Europe’s energy crisis worsened after Group of Seven countries approved a plan to try to cap the price of Russian crude.
West Texas Intermediate advanced to $89 a barrel after sinking nearly 7% last week on concerns that slowing global growth and China’s virus lockdowns would hurt demand. The Organization of the Petroleum Exporting Countries and allies including Russia will meet later on Monday to set production levels for October after Saudi Arabia flagged the possibility of a cut.
Crude oil has fallen by about a quarter since early June as the global economy slowed and central banks raised interest rates, erasing any gains since Moscow’s invasion of Ukraine. Last week, Russian energy giant Gazprom PJSC said gas flows through a key pipeline to Germany would not be resumed, just after G7 ministers approved a US-led initiative to cap the price of Russian oil.
“We view Gazprom’s decision to extend the shutdown of the Nord Stream 1 pipeline from the initial three days indefinitely as inextricably linked to the G7 price ceiling,” said James Whistler, managing director of Vanir Global Markets Pte. While the intention is to preserve Russian supplies but hurt Russian revenues, “the reality is probably the opposite and we could see a supply disruption.”
Oil’s advance came even as Bloomberg’s gauge of the greenback rose to its highest level amid a broad shift out of risk assets, including stocks, as investors assessed the fallout from Europe’s worsening energy crisis. A stronger dollar is usually a headwind for commodities like crude oil.
Ahead of the OPEC+ session – which falls on a US holiday, which could dampen trade – most market watchers said they did not expect a change in supply at this stage despite Riyadh’s warning. JPMorgan Chase & Co. said production quotas would be rolled over in October as summer surpluses turned into deficits.
Time spreads in the oil market have been volatile in recent weeks. Brent’s forward spread – the difference between its two nearest contracts and a widely watched gauge of signs of tightening – was $1.37 a barrel in the opposite direction, compared with $2.16 last Monday and 67 cents two weeks ago.
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