Oil Prices Skyrocket On News OPEC May Consider Production Cuts

Crude oil and Brent oil surged on Tuesday afternoon gaining almost 5% and continued to rally on Wednesday morning. Crude oil rose to 49.15 up by 62 cents in the early session. Brent oil added 10 cents to 52.27 but the spread remained dangerously close at just over $3. Russia, currently the world’s biggest oil producer, in the past has refused to cooperate with rival Saudi Arabia the top producer in the oil cartel OPEC, despite a collapse in oil prices that has crushed Russia’s economy and government revenues in the last year.

But Novak said for the first time this weekend that Russia is ready to meet with the cartel in a remark that helped drive up oil prices October 5.

The US Energy Information Administration said domestic crude production fell 120,000 barrels a day from August to September. At 9 million barrels a day last month, the US production hit its lowest level in a year. The agency slightly cut its production forecasts putting it at 8.8 million barrels a day in 2016.

Prices had also received a boost earlier in the day from talk of a meeting between Russia and the Organization of the Petroleum Exporting Countries. Industry executives and reports have mentioned a potential meeting to discuss the conditions on the oil market, causing some to speculate the world’s other largest producers could join the US in a continuing pullback.

OPEC’s secretary-general also said that oil prices are set to rebound amid steep cuts in global oil investments. There will be “less supply in the very near future. Less supply means high prices,” Abdalla Salem el-Badri said at the conference.

In November last year, the 12-nation oil producer group embarked on a policy to defend its market share by keeping its output stable despite the slump in prices. OPEC has since indicated it will only consider a cut if other big suppliers join it.

But any production cuts by Russia remain unlikely, given the country’s current economic situation, said Hamza Khan, head of commodities strategy at ING Bank. Higher production is the only way Russia can keep its revenues stable, he said.

After markets closed on Tuesday the American Petroleum Institute said that crude supplies fell 1.2 million barrels for the week ended Oct. 2. Analysts polled by Platts expected supplies to be up 1.75 million barrels.

Markets are awaiting the EIA weekly report on US commercial crude inventories, a closely watched indicator of demand in the world’s top consuming nation. Today’s report is expected to show inventories rose by two million barrels in the week to Oct 2, according to a Bloomberg News survey.

Oil prices, which tumbled in August to six-year lows under pressure from strong global output, have been slowly climbing back up.

“Oil prices have been supported by a number of factors lately, including… a slightly weaker US dollar, the positive vibes arising from the rebounding stock markets, and Russia’s military actions in Syria which has increased supply-side risks in the Middle East region,” said an analyst at traders Gain Capital.