By Shadia Nasralla and Rod Nickel
(Reuters) – Oil prices jumped 2% on Tuesday, with Brent futures hitting a three-year high while U.S. crude hit its highest since 2014 after the OPEC+ group of producers stuck to its planned output increase rather than pumping even more crude.
OPEC+ agreed in July to boost output by 400,000 barrels per day (bpd) each month until at least April 2022 to phase out 5.8 million bpd of existing production cuts.
Brent crude was up $1.60, or 2%, at $82.86 a barrel by 11:05 a.m. ET (1506 GMT), having risen 2.5% on Monday. U.S. West Texas Intermediate (WTI) oil rose $1.56, or 2%, to $79.18, after gaining 2.3% in the previous session.
“There is definitely a shortage in the market,” said Robert Yawger, director of the futures division at Mizuho Americas.
Speculator buying has also driven up oil prices, but some technical indicators suggest the market may be overbought, Yawger said.
“At some point you run out of people to push it and the last long (position) is already in the market.”
Oil prices have already surged more than 50% this year, adding to inflationary pressures that crude-consuming nations such as the United States and India are concerned will derail recovery from the COVID-19 pandemic.
Late last month, the OPEC+ Joint Technical Committee (JTC) said it expected a 1.1 million bpd supply deficit this year, which could turn into a 1.4 million bpd surplus next year.
Despite the pressure to ramp up output, OPEC+ was concerned that a fourth global wave of COVID-19 infections could hit the demand recovery, a source told Reuters a little before the vote.
“The (price) move looks a bit outsized given the ministers just reaffirmed the decision announced in July, but it shows how tight the market is, reinforcing our view of asymmetric price action with risks skewed to the upside at these inventory levels,” Barclays said in a note.
Investors will closely watch Wednesday’s crude inventory data from the U.S. Energy Information Administration for further direction.
U.S. crude oil and distillate inventories are likely to have fallen last week, a preliminary Reuters poll showed. [EIA/S]
Five analysts surveyed by Reuters estimated on average that crude inventories declined by about 300,000 barrels in the week to Oct. 1.
(Additional reporting by Aaron Sheldrick; Editing by Jason Neely, David Goodman and David Gregorio)
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