Oil prices rose by about $3 a barrel on Tuesday on expectations of a large cut in crude output from the OPEC+ producer group, and support from a weaker US dollar.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, look set to cut output when they meet on Wednesday. The move would squeeze supply in an oil market that energy company executives and analysts say is already tight due to healthy demand, a lack of investment and supply problems.
Sources from the group have said that OPEC+, which includes Russia, is discussing output cuts in excess of 1 million barrels per day (bpd). Oil extended gains after Bloomberg reported that OPEC+ was considering a 2 million bpd cut.
"We expect a substantial cut to be made, which will not only help to tighten the physical fundamentals but sends an important signal to the market," Fitch Solutions said in a note.
Kuwait's oil minister said OPEC+ would make a suitable decision to guarantee energy supply and to serve the interests of producers and consumers.
OPEC+ has boosted output this year after record cuts put in place in 2020 when the pandemic slashed demand.
But in recent months, the group has failed to meet its planned output increases, missing in August by 3.6 million bpd.
The production target cut being considered is justified by the sharp decline in oil prices from recent highs, said Goldman Sachs, adding that this reinforced its bullish outlook on oil.
Also boosting oil prices, the US dollar was headed for a fifth daily loss against a basket of currencies as investors speculated that the US Federal Reserve might slow its interest rate hikes.
Meanwhile, a senior US Treasury official said G7 sanctions on Russia will be implemented in three phases, first targeting Russian oil, then diesel and then lower-value products such as naphtha.
Sanctions from the G7 and the European Union, which is opting for a two-phase ban, are set to begin on Dec. 5.
Swiss lender UBS said it sees several factors that could send crude prices higher toward year-end, including "recovering Chinese demand, OPEC+ further supply cut, the end of the US Strategic Petroleum Reserve (SPR) release and the upcoming EU ban on Russian crude exports".
Top oil traders also said at the Argus European Crude Conference in Geneva on Tuesday that economic headwinds have not yet caused significant erosion of global oil demand.
US crude oil stocks were estimated to have increased by about 2 million barrels in the week to Sept. 30, a preliminary Reuters poll showed on Monday.