Oil set for monthly gain before OPEC+ begins cutting output

Oil headed for its first monthly gain since May in anticipation of sizable production cuts by OPEC+ that are set to tighten the market.

West Texas Intermediate futures rose above $88 a barrel and are up around 11 percent in October, the biggest gain since January. The Organization of Petroleum Exporting Countries and its allies are poised to trim output by 2 million barrels a day from November, the largest curbs since the pandemic. Key time spreads are already in steep backwardation, signaling market tightness.

The OPEC+ cuts are the start of an uncertain period for oil supply heading into winter, with the European Union set to implement sanctions on Russian flows in December. Crude has shed a quarter of its value since June as concerns of a global slowdown and tight monetary policy threatened to curtail demand.

“The market is poised to continue moving higher as Russian sanctions are set to take effect on Dec. 5 and as OPEC+’s 2-million barrel a day cut enters into play,” said James Whistler, the managing director of brokerage Vanir Global Markets Pte. in Singapore.

Investors will be watching interest rate decisions from central banks including the Federal Reserve this week. The US dollar dipped from a record recently, even as the Fed hikes rates to tame inflation. That’s helped crude rally as it makes commodities priced in the currency cheaper for overseas buyers.

Brent’s prompt spread - the difference between the two nearest contracts -was $2.05 a barrel in backwardation on Monday. That compares with $1.92 at the start of the month.

Iranian Oil Minister Javad Owji will travel to Russia on Monday to discuss a $40 billion agreement with Gazprom to develop oil and gas fields in Iran, Tasnim news agency reported. Some 50 Iranian officials are already in Moscow for meetings, according to Tasnim.