WASHINGTON (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange advanced more than 3% Tuesday in reaction to reports indicating the Organization of the Petroleum Exporting Countries and allied partners will announce a production cut of 2 million barrels per day (bpd) for the month of November to backstop a slide in oil prices.
Moreover, Saudi Arabia and Gulf partners are likely to shoulder a large chunk of the cut from current production as opposed to nominal targets by OPEC+ members that have underproduced quotas. An actual reduction in production of 2 million bpd could only be realized by the Saudis, United Arab Emirates, Kuwait, and possibly Iraq that still have wiggle room to shut-in a sizable volume of output without losing export markets or affecting oil infrastructure.
Russia, OPEC+'s second largest producer, has voiced support for a large output cut as it struggles to expand its export market under international sanctions and attempts to increase the revenues from existing sales. If agreed upon, this would be the bullish surprise to the market and the largest reduction to OPEC+ output since April 2020 when the group slashed collective production by 9.7 million bpd to offset demand destruction brought by the global pandemic.
Earlier in the session, oil futures advanced on comments by Saudi Aramco Chief Executive Amin Nasser who stressed limited spare capacity held by OPEC+ producers. Nasser estimated global spare capacity stands at just 1.5% of current oil production, which in his view would be tapped the moment Beijing moves past its zero-COVID policy that has constrained China's economy. Saudi officials have said on multiple occasions the industry needs higher oil prices to incentivize new production amid the current transition towards green energy. Saudi's current oil output stands at 10.904 million bpd, according to OPEC's Oil Monthly Market Report, far below a record 12.3 million bpd the kingdom briefly reached in April 2020. Nasser furthered that Saudi Arabia won't reach its goal of 13 million bpd production capacity until at least 2027.
At settlement, WTI October futures traded on the New York Mercantile Exchange advanced $2.89 barrel (bbl) to $86.52 bbl, and International Brent futures for December delivery on the Intercontinental Exchange settled at $91.80 bbl, up by $2.94 bbl on a session.
NYMEX November RBOB futures spiked 17.01 cents to $2.6830 gallon, with the front-month ULSD futures adding 16.67 cents for $3.5358 a gallon settlement.
Liubov Georges can be reached at email@example.com