By Peter Nurse
Investing.com -- Oil prices rose strongly Monday ahead of a meeting of top producers to discuss production levels and as worries rise about the supply of gas to Europe.
By 04:55 ET (08:55 GMT), U.S. crude futures traded 2.6% higher at $89.11 a barrel, while the Brent contract rose 2.7% to $95.53.
U.S. Gasoline RBOB Futures were up 1.3% at $2.4951 a gallon.
The Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+, meets later Monday, and is largely expected to keep current output levels despite supplies remaining tight.
However, Saudi Arabia, the de facto leader of the group, recently floated the idea of cutting production levels to support prices, and this potential is supporting the market.
Oil prices have fallen in the past three months, after touching multi-year highs in March, on concerns that interest rate rises and COVID-19 curbs in parts of China, the world's top crude importer, may slow global economic growth and cool oil demand.
“However, we believe that OPEC+ will leave output targets unchanged for next month. It is difficult to justify cutting output when the market is trading near US$100/bbl,” said analysts at ING, in a note.
“It would make more sense for OPEC+ to wait for further clarity on Iranian nuclear talks before taking any action. These talks appear to have taken a turn for the worse, with the U.S. saying that Iran’s latest response was ‘not constructive’.”
Also influencing the oil market Monday was the news that Russia has halted indefinitely the supply of gas through the Nord Stream pipeline to Germany, raising concerns of an energy crisis in the euro zone and supporting demand for oil.
“The halting of flows means that Europe will lose close to 1bcm of natural gas supply per month. The market will now likely become increasingly nervous about flows via Ukraine as well as TurkStream,” ING added.
Moscow’s move to end gas supplies through this important pipeline came almost immediately after G-7 finance ministers agreed on a plan to impose a price cap on Russian oil exports, aiming to financially weaken President Vladimir Putin's government as it continues its invasion of Ukraine.
There are doubts about the effectiveness of this plan given larger buyers such as China, India, and Turkey would need to take part.
“There is no guarantee they will, particularly after Russia has said that it will not supply any country who follows the price cap,” said ING.