Investing.com -- Fear that the OPEC+ alliance of world oil producers could announce a third production cut in nine months led crude prices to rally again on Friday, significantly paring weekly losses.
New York-traded West Texas Intermediate, or WTI, crude settled up $1.64, or 2.3%, at $71.74 per barrel. For the week, WTI was down 1.3%. On Wednesday, the U.S. crude benchmark hit a four-week low of $67.03.
London-traded Brent crude settled up $1.85, or 2.5%, at $76.13. For the week, Brent was down 1%. The global benchmark for oil hit a four-week low of $71.39 on Wednesday.
Crude prices sank earlier in the week partly on concerns over an unresolved U.S. debt ceiling agreement and worries that the Federal Reserve will hike rates again when the central bank’s policymakers meet on June 14. But chiefly, the weakness in oil was on speculation that market bulls would be disappointed by an absence of production cuts when ministers of OPEC+ meet on Sunday to discuss market-supportive action for crude prices that have fallen more than 10% this year.
By Friday though, there appeared to be more positives than negatives for those long oil, with President Joe Biden poised to sign a new debt ceiling agreement passed by the Senate and economists still betting on a Fed rate pause despite stronger-than-expected U.S. jobs performance in May.
Crude traders also braced for the likelihood of OPEC+ imposing another production cut, even if modest, to show its control of the market.
“Oil prices are edging higher into the end of the week, perhaps a sign of nerves appearing before the OPEC+ meeting this weekend,” said Craig Erlam, analyst at online trading platform OANDA. “While there seems to be a widely held view that the group won't announce any further cuts, it's worth noting that the same was true at the last meeting and then the group announced cuts of roughly another million barrels.”
OPEC+ groups the 13-nation Saudi-led OPEC, or Organization of the Petroleum Exporting Countries, with 10 other oil producers steered by Russia.
Last week, Saudi Energy Minister Abdulaziz bin Salman issued a warning to the short sellers in oil, hinting at further cuts. But Russian President Vladimir Putin later said oil prices were approaching “economically justified” levels, indicating that more output reductions might not be required in Moscow’s opinion. That pushed crude prices lower on the notion that the two biggest powers in OPEC+ weren’t on the same page.
Notwithstanding the potential for more cuts being announced at the weekend, OPEC+ has had limited success this year in bolstering the market through supply squeezes.
The alliance announced a 1.7 million barrel per day cut in April, on top of an October undertaking to shed 2M barrels daily.
After the April cut was announced, crude prices only went up for two weeks, before turning lower over four weeks, erasing some 15%. The earlier pledge to cut 2M barrels fared worse, resulting in just a few days of gains before prices tumbled to 15-month lows in March.