Oil futures headed higher on Wednesday after OPEC+ agreed to reduce output by 2 million barrels a day, and U.S. data revealed a second straight weekly decline in crude supplies.
Still, traders were unsure of just how much the group of major producers will really manage to cut output given that they have been unable to reach their previous production quotas.
West Texas Intermediate crude for November delivery
rose 33 cents, or 0.4%, to $86.85 a barrel on the New York Mercantile Exchange after posting a gain of 3.5% Tuesday.
November natural gas
rose 1.2% to $6.913 per million British thermal units.
Crude prices had spent the first days of the week rallying on expectations OPEC+ — made up of Saudi-led OPEC and other major producers, led by Russia — would deliver a large cut to output at its meeting, held Wednesday in Vienna.
On Wednesday, the group said it agreed to reduce production by 2 million barrels a day starting in November. That’s the largest reduction since the start of the pandemic in 2020, which led to declines in energy demand amid travel restrictions.
Even so, analysts note that with several OPEC+ members already producing below their production target, the actual reduction from current output levels would likely be smaller.
The OPEC+ group is under-producing its current quota by 3.5 million barrels per day, with OPEC itself under-producing by 1.2 million barrels per day and allied countries under producing by 2.4 million barrels a day, led by Russia, said Rob Thummel, portfolio manager at Tortoise.
Following the decision, the “more important aspect is how members actually follow through on stated goals, and whether achieving cut targets actually translates to the deliberate removal of barrels that would otherwise reach the global market,” said Robbie Fraser, global research and analytics manager at Schneider Electric, in a daily note ahead of agreement.
Crude prices fell last week to an eight-month low but have bounced sharply this week, with WTI up more than 9% and Brent rising more than 8%, ahead of the OPEC+ decision.
A large cut was expected to upset the Biden administration. President Joe Biden, after a controversial visit to Saudi Arabia in July, said at the time he expected the kingdom to boost output.
“Looking at the longer-term fundamentals,…spare capacity is limited and recession fears likely became overdone which leaves the market susceptible to a bullish supply side shock,” wrote analysts at Sevens Report Research, in a note.
Also Wednesday, the Energy Information Administration on Wednesday reported weekly declines for U.S. crude, gasoline and distillate inventories.
Domestic crude inventories fell by 1.4 million barrels for the week ended Sept. 30. On average, analysts forecasted a decline of 1.5 million barrels, according to a poll conducted by S&P Global Commodity Insights. The American Petroleum Institute, an industry group, late Tuesday said U.S. crude inventories fell by 1.8 million barrels last week, according to news reports.
The EIA also reported weekly inventory declines of 4.7 million barrels for gasoline and 3.4 million barrels for distillates The S&P Global Commodity Insights survey had called for decreases of 2.3 million barrels for gasoline and 1.8 million barrels for distillates.
Crude stocks at the Cushing, Okla., Nymex delivery hub edged up by 300,000 barrels for the week, the EIA said, while crude stocks in the Strategic Petroleum Reserve fell by 6.2 million barrels to 416.4 million barrels.