Oil hits multi-year highs as Opec+ sticks to output plan

Opec+ agreed to adhere to its July pact to boost output by 400,000 barrels per day each month until at least April 2022.
Opec+ agreed to adhere to its July pact to boost output by 400,000 barrels per day each month until at least April 2022.PHOTO: REUTERS

BENGALURU (REUTERS) - Oil prices jumped on Tuesday (Oct 5), with US crude hitting its highest level since 2014 and Brent futures climbing to a three-year high, after the Opec+ group of producers stuck to its planned output increase rather than raising it further.

On Monday, the Organisation of the Petroleum Exporting Countries and its allies including Russia agreed to adhere to the July pact to boost output by 400,000 barrels per day (bpd) each month until at least April 2022, phasing out 5.8 million bpd of existing production cuts.

US West Texas Intermediate (WTI) oil closed US$1.31 higher, or 1.7 per cent, at US$78.93 a barrel. During the session, it surged more than 2 per cent to as high as US$79.48, the most in nearly seven years. Brent crude was US$1.30 higher, or 1.6 per cent, at US$82.56.

Earlier, Brent hit a three-year high of US$83.13.

Both contracts extended gains made on Monday, when each rose more than 2 per cent.

"The market is realising we are going to be undersupplied for the next couple of months and Opec seems to be happy with that situation," said Mr Phil Flynn, an analyst at Price Futures Group in Chicago.

Oil prices have already surged more than 50 per cent this year, adding to inflationary pressures that crude-consuming nations, such as the United States and India, are concerned will derail recovery from the Covid-19 pandemic.

Late last month, the Opec+ Joint Technical Committee said it expected a 1.1 million bpd supply deficit this year, which could turn into a 1.4 million bpd surplus next year.

Despite pressure to ramp up output, Opec+ was concerned that a fourth global wave of Covid-19 infections could hit the demand recovery, a source told Reuters a little before Monday's talks.

Rocketing global natural gas prices, which may incentivise some power generators to switch from gas to oil, mean crude prices are likely to remain supported even though there could be a short-term pullback, said Mr Gary Cunningham, director of market research at Tradition Energy.

"I think there will be some profit-taking... but we are going into winter with very high natural gas prices," Mr Cunningham said, adding that he expects Brent will find support around US$80 and WTI in the mid-US$70s.

Investors will look to Wednesday's crude inventory data from the US Energy Information Administration for further direction.

US crude oil and distillate inventories likely fell last week, a preliminary Reuters poll showed.