Oil Poised for Biggest Weekly Rally Since March on OPEC+ Move

OPEC

Oil headed for the biggest weekly gain since early March as OPEC+ put the market on course for further tightening ahead of winter.

West Texas Intermediate futures rose to near $89 a barrel on Friday and are up around 12% for the week.

Time spreads were signaling supply scarcity even before the producer alliance announced its biggest output cut since the start of the pandemic, a move that’s set to squeeze the market even more.

The tightening outlook halted the slide in oil prices, which have been weighed down by concerns over a global economic slowdown and aggressive rate increases by central banks. Russia also reiterated this week that it won’t sell oil to countries that adopt a US-led price cap, adding to supply uncertainty.

Output reduction by alliance set to tighten market further

The move by OPEC+ to cut output “could be a turning point for the market,” Australia & New Zealand Banking Group Ltd. analysts including Daniel Hynes said in a note. “Sentiment was already bearish in anticipation of a weakening global economy, and this decision should further tighten the market.”

Oil consumers have been given some respite by key OPEC+ member Saudi Arabia, which kept prices for November shipments to Asia steady and lowered those for Europe. Refiners and traders had predicted a hike.

The Organization of Petroleum Exporting Countries and its allies plan to reduce output by 2 million barrels a day from November. However, Saudi Arabia’s oil minister said the real-world cut will likely be around 1 million to 1.1 million because some members are pumping well below their quotas.