(Bloomberg) -- Oil climbed above $84 in its biggest intraday gain since July as the OPEC+ alliance considers slashing production to revive prices when it meets this week.
OPEC and its allies could scale back production by more than one million barrels a day, its largest reduction since the pandemic. A final decision on the size of the cuts won't be made until ministers gather in Vienna on Wednesday. Some OPEC+ members are producing below their production quotas, dulling the impact of a supply cut, but the potential for further supply tightness amid already low inventories drove West Texas Intermediate to rise as much as 6%.
“It's surprising for the market to have OPEC talking about cuts of a million barrels a day with inventories really still quite tight and the fact that they've also been missing their own production targets,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “But that said, we've had prices slump now from over $120 to $80, so I'm sure they're looking at that as a challenge.”
With potential recessions and lower seasonal demand heading into the winter, “there's not a great forward scenario so the cuts themselves make some sense given how the data's lining up from a demand growth perspective,” he added.
Oil fell by a quarter in the three months through September as a slowing global economy sapped demand. Banks, including UBS Group AG and JPMorgan Chase & Co., said the Organization of Petroleum Exporting Countries and its allies may need to trim output by at least 500,000 barrels a day to stabilize prices. Goldman Sachs said a reduction of more than one million barrels a day could bring investors back into the market.
This week's OPEC+ meeting will be the first in-person gathering since March 2020. The group is deciding on supply for November.
A large output cut may draw criticism from the US and other major consumers, where energy-driven inflation has forced central banks to aggressively jack up interest rates. There also is the specter of European sanctions on Russian oil that are due to take effect in December.
The European Union is aiming for a preliminary deal as soon as Monday for a package designed to punish Russia for its war in Ukraine. The agreement likely would include political backing for imposing a price cap on Russian oil.
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