Oil Rises From Seven Year-High as OPEC Sticks to Output Plan

(Bloomberg) -- Oil climbed from a seven-year high as traders assessed OPEC+’s decision to keep supplies fairly tight even as the world grapples with a natural gas crisis.

Futures in New York advanced as much as 2% on Tuesday, heading closer to the key, psychological $80-a-barrel level. At an OPEC+ meeting on Monday, Saudi Arabia and its partners opted for only a modest output increase of 400,000 barrels a day for November, taking many analysts by surprise as a spike in natural gas prices looks set to inflame demand for oil products this winter. 

“There is no room for error in the system,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “If we get a cold winter these prices could go up dramatically.”

Both the U.S. and global crude benchmarks have surged this month with rising natural gas prices stoking fear of higher demand for crude for power generation. Goldman Sachs Group Inc. sees the switch adding an extra 650,000 barrels a day to oil demand.

Meanwhile, various underlying oil market gauges are also showing signs of strength. West Texas Intermediate crude’s so-called Dec.-Red-Dec. spread, a favored trade of the world’s hedge funds, topped $7.50 a barrel this week, the strongest on a rolling basis since 2019. 

Citigroup said the OPEC+ coalition may end up meeting before November, as an ever-tighter market compels the producers to reconsider their strategy.

“They are going to meet again, eventually, if not before the month of November, to try to put more oil back in the market,” Ed Morse, the bank’s head of commodities research, said on Monday in a Bloomberg Television interview. “Almost every analyst on the planet has a different view from what the OPEC secretariat has about demand growth in the next two months.”

More stories like this are available on bloomberg.com

©2021 Bloomberg L.P.