Oil surges as OPEC+ speculation, China Covid briefing boosts sentiment

(Bloomberg) — Oil rose on expectations that the Organization of the Petroleum Exporting Countries and allies will deepen supply cuts and speculation that China may ease Covid-Zero restrictions after protests flared in the biggest importer.

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West Texas Intermediate jumped to $79 a barrel after turning to gains on Monday following a report that OPEC+ may consider curbing supply when members meet to assess output policy this weekend. Earlier in the week’s opening session, crude oil hit its cheapest level since December as rising Covid-19 cases and anti-virus containment demonstrations in China hurt commodities.

Officials in China will hold a briefing on Covid prevention and control measures at 3pm in Beijing, boosting gains in risk assets including commodities and stocks. At the same time, the dollar, which benefited from unrest in China over the weekend, weakened, supporting commodities priced in the US currency.

Oil has lost about 9% this month as tighter monetary policies set the stage for a global slowdown that could threaten energy consumption. Those concerns, along with doubts about Chinese demand, prompted OPEC+ to announce a major output cut last month, and delegates from the group now say further cuts may be an option. Ahead of the meeting, widely watched market indicators point to ample short-term crude oil supplies.

“There is a short-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 negative technical picture in the oil market and this is likely to force the cartel to react.”

Market watchers are mulling the alliance’s next move. Industry consultant FGE said the cartel could decide to cut output by another 2 million barrels at a meeting on December 4 to counter a volatile market, while RBC Capital Markets said it expected either no change in supply or a cut by up to 1 million barrels, depending in part on how prices fared this week.

The OPEC+ meeting comes a day before European Union sanctions on Russian crude flows take effect on December 5, along with curbs on access to insurance and other services. Negotiations between EU diplomats to achieve a price cap on Russian oil, which is part of the package, are at a standstill. The measure aims to deprive Russia of revenue following its invasion of Ukraine. The country has said it will not sell crude oil to nations that comply with the cap.

Key market indicators have weakened significantly this month, with quick spreads – the difference between the two closest contracts – for both Brent and WTI moving into bearish contango patterns. Brent was 69 cents a barrel in contango, compared with $1.32 a barrel two weeks ago.

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