Oil rises 2%, reverses loses as OPEC+ addresses market weakness

Oil prices rose more than 2% on Thursday, turning positive as OPEC and its allies said the producer group would crack down on countries that failed to comply with output cuts and planned to hold an extraordinary meeting in October if oil markets weaken further.

After falling early in the session amid bearish jobs numbers and a ramp up in Gulf of Mexico oil output following Hurricane Sally, crude benchmarks reversed course to gain on the day, bolstered by comments from OPEC.

“Although no amendments to the current supply-cut deal have been proposed by OPEC+ today, the producers group gave the impression that it does not sweep troubles under the carpet,” said Rystad Energy’s Head of Oil Markets, Bjornar Tonhaugen.

Brent oil futures extended gains to settle up $1.08 or 2.56% at $43.30 a barrel. U.S. crude futures settled higher by 81 cents, or 2.02% at $40.97 a barrel. Both contracts rose more than 4% on Wednesday.

The panel of major producers, including Saudi Arabia and Russia, did not recommend any changes to their current output reduction target of 7.7 million barrels per day (bpd), or around 8% of global demand, according to a draft press release and an internal report.

The panel pressed laggards such as Iraq, Nigeria and the United Arab Emirates to cut more barrels to compensate for overproduction in May-July, while extending the compensation period from September to the end of December, according to three OPEC+ sources.

“They were coming down hard on the UAE,” said Phil Flynn, senior analyst at Price Futures Group in New York. The expectation that output could fall as the UAE and others trim production bolstered prices, he said.

The OPEC news overshadowed the restart of U.S. offshore production after Hurricane Sally passed through the Gulf of Mexico and bearish U.S. economic news.

U.S. energy companies were starting to return crews to offshore oil platforms in the Gulf of Mexico after Sally halted operations for five days, shutting down nearly 500,000 bpd of output.

Prices were also under pressure from the slow economic recovery from the pandemic.

Global coronavirus cases are expected to pass 30 million on Thursday, according to a Reuters tally.

The U.S. Labor Department’s report showed the number of Americans filing new claims for unemployment benefits fell last week, but remained at extremely high levels as the labor market recovery shifts into low gear and consumer spending cools.

Even OPEC+ cautioned that the pandemic could continue to curb demand. An OPEC+ technical panel warned that a rise in coronavirus cases in some countries may curb oil demand despite signs of economic recovery and initial indications of a decline in oil stocks, according to an internal document seen by Reuters.