Oil rallies as Opec meets, butsupplyconcernlooms

Oil pared a hefty gain with OPEC ministers gathering amid booming volatility.

West Texas Intermediate was up 2.6per cent. After a sharp drop Tuesday, driven by the omicron variant and technical factors, the focus now shifts to the reaction from producers.

The Organization of Petroleum Exporting Countries and its allies meet Wednesday and Thursday to set output policy, with some analysts expecting the group to pause supply hikes. The US frustrated OPEC+ last week by announcing a release from its strategic reserves, though it has since moved to cool tensions with Saudi Arabia.

With OPEC+ and the omicron variant dominating the market, there is also another wildcard in the background -- the Iranian nuclear deal. Diplomats are working on a draft agreement, state-run Press TV reported, but there was little sign of an imminent deal after talks resumed on Monday.

There are indications that crude’s fundamentals have softened, reflected in a weakening price structure along the curve. Yet Goldman Sachs Group Inc. said Tuesday that oil prices have now “far overshot“the likely impact of the new virus variant. OPEC+ has “erred on the side of caution since it began slowly boosting supplies,” said Stephen Brennock, an analyst at PVM Oil Associates.

A potential decision to shelve January’s planned increase and keep quotas flat “comports with its cautious approach.”

Oil’s volatility has spiked, with WTI closing down 13 per cent on Friday before climbing on Monday and slumping again Tuesday. Gauges of swings in both WTI and Brent are at their highest since May 2020.

Although oil remains in backwardation, differentials have narrowed. Brent’s prompt spread was 44 cents a barrel, down from $1.20 a week ago.