Oil dips below $89 on potential for faster supply boost

A GOI company truck is seen next to fuel pumps at a Cepsa petrol station in Cuevas del Becerro, Spain, Nov. 29, 2021. (REUTERS/Jon Nazca/File Photo)

LONDON – Oil slipped on Tuesday from seven-year highs, with prices pressured by speculation that producer group OPEC+ could decide to boost supply by more than flagged previously as well as expectations of a rise in US inventories.

While the Organization of the Petroleum Exporting Countries (OPEC) and allies, together known as OPEC+, has been expected to maintain its policy of gradual production increases at a meeting on Wednesday, Goldman Sachs said there was a chance of further steps.

“We view growing potential for a faster ramp-up at this meeting, given the pace of the recent rally and the likely pressure from importing nations,” the bank said in a Jan. 31 report, adding that expectations remained “evenly balanced” between an accelerated response and a status quo increase.

Brent crude was down 63 cents, or 0.7%, at $88.63 a barrel by 1430 GMT. U.S. West Texas Intermediate crude slipped 55 cents, or 0.6%, to $87.60.

Oil was also pressured by expectations that this week’s U.S. supply reports will show an increase in crude stockpiles. Analysts expect stocks to have risen by 1.8 million barrels.

The first of this week’s two supply reports, from the American Petroleum Institute, is out at 2130 GMT. [EIA/S]

Brent and U.S. crude had hit their highest prices since October 2014 on Friday, at $91.70 and $88.84 respectively. They gained about 17% in January on a supply shortage, political tensions in the Middle East and between Russia and the West over Ukraine.

OPEC undershot its promised output boost in January, a Reuters survey found, and the rally was expected by other analysts to persist. [OPEC/O]

“The oil market is currently unreservedly bullish,” said Tamas Varga of oil broker PVM. “It is international tension, the perception of tight supply and the cold winter that are the most important factors behind the strength.”

Rising differentials in the physical crude market imply concern about tight supply, Varga said. One of the North Sea crudes that underpins Brent, Ekofisk, was bid on Monday at its highest in more than a decade.

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