Oil retreats on caution ahead of OPEC+ meeting

Oil futures fell on Tuesday, reversing steep gains made in the past two sessions, as investors turned cautious ahead of a meeting of OPEC+ this Sunday when the producer group may discuss deepening supply cuts due to slowing global growth.

Brent crude futures fell 51 cents, or 0.6 per cent, to $81.81 a barrel by 0746 GMT, while US West Texas Intermediate crude futures were at $77.32 a barrel, down 51 cents, or 0.7 per cent.

Both contracts climbed about 2 per cent on Monday after three OPEC+ sources told Reuters that the group, made up of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, was set to consider whether to make additional oil supply cuts when it meets on Nov. 26.

Those gains were trimmed on Tuesday.

Short-term speculators took profit on WTI after several indicators were overbought on technical charts, Singapore-based OANDA analyst Kelvin Wong said.

“Market participants have started to price in an extension of the current quantum oil supply cut into 2024 or even deeper cuts in the upcoming OPEC+ meeting,” he added.

OPEC+ is likely to extend or even deepen oil supply cuts into next year, eight analysts have predicted.

RBC Capital analyst Helima Croft said: “We see some scope for the group to do a deeper reduction, but we would anticipate that Saudi Arabia would seek additional barrels from other members to share the burden of the adjustment.”

Reopening the quota agreements reached in June could prove challenging and could lead to protracted negotiations, and hence the leadership may look for more voluntary adjustments from individual producers, she added in a note.

Oil prices have dropped about 16 per cent since late September as crude output in the US, the world’s top producer, held at record highs, while the market was concerned about demand growth, especially from the world’s largest oil importer, China.

Traders were also watching for signs of demand destruction from a possible US recession in 2024 and considering last week’s warning about possible deflation from Walmart (WMT.N), the largest US retailer.

US crude and gasoline stockpiles likely rose last week, while distillates inventories were seen dropping, a preliminary Reuters poll showed on Monday. Weekly stockpile reports from the American Petroleum Institute and the Energy Information Administration are due later on Tuesday and Wednesday, respectively.