Oil rose on Thursday supported by investor wariness that OPEC+ may cut supply further at its meeting on Sunday and as easing Covid curbs in China raised hopes about higher demand in the world’s top crude importer.
Crude gained further support, and the U.S. dollar weakened, after the Federal Reserve Chair opened the door to a slowdown in the pace of rate hikes. Dollar weakness makes oil cheaper for other currency holders and tends to support risk assets.
The Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, meets on Dec. 4. While sources said on Wednesday a policy change was unlikely, some analysts say a further cut cannot be ruled out.
“Oil is finding support on investor optimism that OPEC+ will deliver further cuts in production when they meet,” said Ehsan Khoman, analyst at MUFG Bank, in a report.
Brent crude was up 88 cents, or 1%, to $87.85 a barrel, while U.S. West Texas Intermediate crude futures added 95 cents, or 1.2%, to $81.50.
Both benchmarks have posted three consecutive weekly declines, although the market has rebounded strongly this week after hitting the lowest in nearly a year on Monday. Brent then touched a low of $80.61, the lowest since Jan. 4.
The prospect of a lower price cap on Russian oil was also supporting the market, analysts said. European Union countries are inching towards a deal on the price cap ahead of a Dec. 5 deadline.
“Barring any negative surprise during Sunday’s virtual OPEC+ talks and assuming a healthy compromise on the Russian oil price cap before the EU sanctions kick in on Monday it is tempting to audaciously conclude that the bottom has been found,” said Tamas Varga of oil broker PVM.
“Inflation has not been defeated but its negative economic impact has probably been mitigated.”
Sentiment was also lifted by the shift in China’s zero-Covid strategy, which raises optimism over Chinese oil demand recovery. The cities of Guangzhou and Chongqing announced an easing of Covid curbs on Wednesday.
A slide in U.S. crude inventories in weekly data added further price support.