Oil rises on chances of OPEC+ output cut, easing China COVID curbs

  • OPEC+ meeting on Sunday in focus
  • Two Chinese cities ease COVID curbs
  • Fed comments on possible rate hike slowdown weaken dollar
  • EU agrees $60 price cap on Russian sea-borne oil -EU diplomat
  • U.S. crude inventories fall more than expected

LONDON, Dec 1 (Reuters) – Oil rose about $2 a barrel on Thursday on the chance of further supply cuts by OPEC+ and as easing COVID curbs in China raised the likelihood of higher demand from the world’s top crude importer.

Crude also gained support from dollar weakness prompted by euro zone factory data and the Federal Reserve Chair saying the pace of U.S. interest rate hikes could be scaled back. A weaker dollar makes oil cheaper for other currency holders and tends to support risk assets.

The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, a group known as OPEC+, will meet on Dec. 4. Though sources said on Wednesday a policy change is unlikely, some feel that a further cut cannot be ruled out.

“I believe the OPEC+ meeting forces shorts to cover, but the consensus is unchanged quota levels,” said Tamas Varga, of oil broker PVM.

“Perceived easing of Chinese COVID restrictions, favourable factory data from the euro zone and the resultant dollar weakness provide continuous price support.”

Brent crude was up $1.87, or 2.2%, at $88.84 a barrel by 1436 GMT, while U.S. West Texas Intermediate crude futures added $2.02, or 2.5%, to $82.57.

The apparent shift in China’s zero-COVID strategy raises optimism over a recovery in oil demand in the world’s second largest economy. The cities of Guangzhou and Chongqing announced an easing of COVID curbs on Wednesday.

“The signals coming from China also look very positive,” said Craig Erlam of brokerage OANDA. “Any modest softening in its COVID-zero policy will and should be welcomed.”

Both oil benchmarks have posted three consecutive weekly declines, although the market has rebounded strongly this week after hitting its lowest in nearly a year on Monday. Brent touched $80.61, its lowest since Jan. 4.

The prospect of a lower price cap on Russian oil is also lending support, analysts said. European Union governments tentatively agreed on Thursday on a $60 cap on Russian sea-borne oil, with an adjustment mechanism to keep the cap at 5% below the market price, an EU diplomat said.

A slide in U.S. crude inventories in weekly data also underpinned the price rally.

Additional reporting by Jeslyn Lerh in Singapore; Editing by Kirsten Donovan, David Goodman and Arun Koyyur

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