WASHINGTON, D.C. (DTN) -- Oil futures on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange extended higher into early trading Tuesday as the U.S. dollar is in retreat for a fifth straight session, and investors look to an anticipated production cut from OPEC+ to be announced Wednesday, with reports indicating the group's two largest producers, Saudi Arabia and Russia, are lobbying for a reduction of more than 1 million barrels per day (bpd) in November to stop the slide in oil prices.
Saudi Aramco Chief Executive Amin Nasser reiterated on Tuesday that markets are not focusing on tight supply fundamentals, and instead are giving too much weight to short-term economics. In a speech to the London's Energy Intelligible Forum, Nasser stressed that current spare capacity is just 1.5% of total global production, which will be tapped the moment Beijing moves past its zero-COVID policy that has constrained China's economy.
Nasser said Saudi production capacity is below 12 million bpd currently and will not reach the target of 13 million bpd until at least 2027.
"It takes us 30 days to reach 12 million bpd. We cannot live in the world without spare capacity," said Nasser.
His comments come just a day before a meeting from OPEC+ producers that are expected to approve a sizable production cut between 500,000 bpd and 1 million bpd, according to median expectations. If agreed upon, this would be 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.
Russia, the group's second largest producer, has reportedly lobbied for a larger cut as it struggles to expand its export markets under the weight of international sanctions and needs higher prices to capitalize on existing sales.
Lending further support to the oil complex is a sudden escalation on the battlefields in Southern and Eastern Ukraine following a series of humiliating defeats for Russian forces that Ukrainian President Volodymyr Zelensky have now called a "trend." These developments follow media reports suggesting some 150,000 men that were part of mobilization call announced by Russian President Vladimir Putin in late September have now arrived at the frontlines. Additionally, media airwaves were hit with the reports on Monday suggesting that Russian military might have moved its nuclear arsenal closer to Ukrainian borders, further stoking fear over nuclear escalation in the seven-month long conflict.
On Friday, Putin illegally annexed four Ukrainian regions in the South and Eastern parts of the country, including Kherson, Zaporizhian, Donbass, and Luhansk. Zelensky has vowed to retake the territories, while Western leaders have said they would never recognize Russia's annexation, calling the late September referendums a sham.
Near 7:45 AM ET, U.S. dollar index retreated more than 0.5% against a basket of foreign currencies to trade near 111.10, lending support to the front-month West Texas Intermediate futures that advanced more than $1 to $84.76 bbl. ICE December Brent futures edged above $90 bbl, up $1.45. NYMEX November RBOB futures advanced 5.96cts to $2.5725 gallon, with the front-month ULSD futures surging 8.74cts to $3.4565 gallon.
Liubov Georges can be reached at firstname.lastname@example.org