Dubai: Oil built on the largest gain in a year after OPEC+ delivered an unexpected production cut that’s expected to tighten the global market.
West Texas Intermediate advanced toward $81 a barrel after rallying by more than 6 per cent on Monday.
Crude has soared by about a quarter since collapsing in mid-March to its lowest level since late 2021. The rebound was driven initially by expectations Chinese demand would pick up as Covid Zero ended, and by interruptions to supplies from Iraq. It was then supercharged by the OPEC+ decision to remove more than 1 million barrels of daily output from the market.
The producers’ group began to see the need for a change in policy on March 20, according to people familiar with the matter, when global benchmark Brent sank to a 15-month low.
“The supply cuts have thrown short sellers under the bus,” said Jessica Amir, a market strategist at Saxo Capital Markets in Sydney. Although US shale drillers might see this as an opportunity to boost output, it’s unlikely that production expansion will be able to make up for the cutbacks, she said.
Many on Wall Street including Goldman Sachs Group Inc. upgraded their price forecasts in the wake of the decision. Still, Morgan Stanley bucked the trend, noting China’s demand growth has lagged behind expectations and lowering its outlook. Citigroup also rebuffed talk of a swift rally back to $100 a barrel.