Oil prices extend rally on deep Opec+ cut, Russia supply warning

US petrol stocks fell more than expected by 4.7 million barrels. PHOTO: AFP

SYDNEY - Oil rose for a fourth session on Thursday after Opec+ agreed to the biggest production cut since 2020 and Russia reiterated a warning that it would not sell crude to any countries that adopted a price cap. 

US West Texas Intermediate (WTI) crude futures were up 45 cents, or 0.5 per cent, to US$88.21 a barrel, after jumping 10 per cent over the previous three sessions. Brent crude futures rose 46 cents, or 0.5 per cent, to US$93.83 per barrel.

The Organisation of Petroleum Exporting Countries and its allied producers plan to slash daily output by two million barrels, their deepest cuts to production since the Covid-19 pandemic, despite a tight market and opposition to cuts from the United States and others.

The cut - equal to about 2 per cent of global supply - drew a swift rebuke from the Biden administration, which had sought more oil from producers as it battled energy-driven inflation. The White House said it would consult Congress on additional paths to reduce the cartel’s control over energy prices in an apparent reference to legislation that could expose members of the group to antitrust lawsuits.

Saudi Arabia, the group’s de facto leader, said the move was in response to rising interest rates in the West and a weakening global economy.

Goldman Sachs raised its fourth-quarter price forecast for Brent oil to US$110 a barrel after the Opec+ action and said the reduction could prompt the International Energy Agency to coordinate a release of reserves. Crude prices have trended lower since June on concerns over a global slowdown.

“All the developments we have seen on the supply side at this point very much set the stage for what we believe will be higher prices into the end of this year,” Mr Damien Courvalin, the head of energy research at Goldman Sachs, said in a Bloomberg television interview. “With this cut and the winter seasonal demand, inventories will continue to fall.”

Saudi Arabia’s energy minister said the real-world impact of the cuts will likely be around one million to 1.1 million barrels a day from November given that some alliance members are already pumping well below their quotas. This still equates to the biggest reduction since the start of the pandemic.

Remote video URL

Speaking after the Opec+ announcement on Wednesday, Russian Deputy Prime Minister Alexander Novak said Russia may cut oil output in an attempt to offset the effects of price caps imposed by the West over Moscow’s actions in Ukraine. The European Union on Wednesday approved a fresh package of sanctions on Moscow that includes a US-led measure to put a price limit on Russian oil.

Russia could cut its oil production by as much as three million barrels per day if the European Union and US proceed with the plan to cap prices, market experts warned.

The price cap plan has been the subject of urgent efforts in recent weeks on the part of US Treasury officials and their Group of Seven counterparts. The untried concept rests on the assumption that Russian President Vladimir Putin needs energy revenues so badly that he will have no choice but to comply with the terms of the cap. Shutting in production, so that line of thinking also goes, could damage Russian wells.

But Mr Robert McNally, president of the Rapidan Energy Group consultancy, said Russia could actually shut in a significant amount of its daily production without jeopardising future flows.

“Russian operators have become expert in flexing their brownfield production, and resting fields can actually boost recoverable resources,” he said.

Cutting back production is not the only option for Russia should the price cap be imposed, said Mr David Goldwyn, an independent consultant and former energy envoy at the State Department under then President Barack Obama.

Other possibilities including cutting off crude exports via the Druzhba pipeline and Caspian Pipeline Consortium, or retaliating in some way to “basically elevate prices anyway”, he said.

A draw in US oil stockpiles last week also supported prices. Crude inventories dropped by 1.4 million barrels in the week ended Sept 30 to 429.2 million barrels, the Energy Information Administration said. BLOOMBERG, REUTERS

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.