Oil rises nearly 4% on possible tightening in OPEC+ supply

Oil prices rose nearly 4% on Tuesday after Saudi Arabia floated the idea of OPEC+ production cuts to support prices in case Iranian crude returns and in anticipation of a drop in US stockpiles.

Citing Abdulaziz bin Salman's remarks to Bloomberg on Monday, state news agency SPA quoted the Saudi energy minister as saying that OPEC+ has the tools to deal with challenges, including cutting production. Brent crude, the global benchmark, rose $3.74, or 3.9%, to trade at $100.22 a barrel. US West Texas Intermediate crude settled up $3.38, or 3.7%, at $93.74 a barrel. Brent reached its highest price since August 2, while WTI had its strongest close since August 11. Bob Yawger, director of energy futures at Mizuho, said the prospect of a resumption of Iranian crude supplies and recession fears, as well as consecutive weekly increases in the US crude storage hub, reduced gasoline demand and the upcoming refinery maintenance season have pushed prices lower in recent weeks and set the tone for OPEC+. "That's what's got the Saudi oil minister a bit flustered," Yawger said. "He was emphasizing that the dynamics were a bit disconnected from reality." In comments reported on Monday, the Saudi minister said the paper and physical oil markets had become "disconnected". However, nine OPEC sources told Reuters on Tuesday that OPEC+ production cuts may not be imminent and would coincide with Iran's return to oil markets if Tehran reaches a nuclear deal with the West. A senior US official told Reuters on Monday that Iran had given up some of its main demands to revive a deal. Oil soared in 2022 and neared an all-time high of $147 a barrel in March after Russia's invasion of Ukraine raised supply concerns. Since then, fears about global recession, rising inflation and weak demand have weighed on prices. While the Brent price has fallen sharply from this year's high, the market structure and price differentials in the physical oil market still point to tight supply. Underlining the tight supply, the latest US stockpiles weekly reports are expected to show that crude oil inventories fell by 900,000 barrels last week. According to market sources citing American Petroleum Institute figures on Tuesday, US crude oil stockpiles are expected to fall, while fuel stocks rose in the last week. Crude oil stocks fell by about 5.6 million barrels in the week ended August 19. According to the sources, who spoke on condition of anonymity, gasoline stocks rose by about 268,000 barrels, while distillate stocks increased by about 1.1 million barrels. Following the API data, the government report will be released at 10:30 on Wednesday.