Oil prices reach seven-year high as OPEC keeps crude supply tight

Oil rose to a new seven-year high after OPEC+ chose to keep supplies fairly tight even as the world grapples with an energy crunch.

Futures climbed above $78 a barrel in New York after surging 2.3% on Monday as Saudi Arabia and its partners opted for a modest output increase of 400,000 barrels a day. Some observers had thought OPEC+ would deliver a bigger hike as the spike in natural gas prices looks set to inflame demand for oil products this winter. Goldman Sachs Group Inc. sees the switch adding extra 650,000 barrels a day to oil demand.

“I think for OPEC, they’re probably just saying, ‘look, this is not our crisis, there’s not much we can do to solve it,’” Richard Gorry, managing director at industry consultant JBC Asia Pte, said in a Bloomberg Television interview. “Extra barrels maybe add a little bit of downward pressure on prices but they’re not going to solve the energy crisis by giving more oil.”

Prices:

West Texas Intermediate for November delivery rose 1.2% to $78.51 a barrel on the New York Mercantile Exchange at 8:09 a.m. local time.

Brent for December settlement gained 1.4% at $82.42 on the ICE Futures Europe exchange after rising 2.5% on Monday to close at the highest level since October 2018.

The prompt timespread for Brent was 80 cents a barrel in backwardation -- a bullish market structure where near-dated contracts are more expensive than later-dated ones. That compares with 74 cents a week earlier.

The OPEC+ decision “will allow us to continue normalize the market situation,” Russian Deputy Prime Minister Alexander Novak said during a speech at the meeting, part of which was broadcast by Rossiya 24 state TV channel. Ministers will meet again to discuss production policy on Nov. 4.

Citigroup said the coalition may end up meeting before then, as an ever-tighter market compels the producers to reconsider their strategy.

“They are going to meet again, eventually, if not before the month of November, to try to put more oil back in the market,” Ed Morse, the bank’s head of commodities research, said on Monday in a Bloomberg Television interview. “Almost every analyst on the planet has a different view from what the OPEC secretariat has about demand growth in the next two months.”