Oil prices climbed on Monday due to supply concerns after OPEC+ producers agreed to maintain their production cut policy in the face of the EU's ban and price cap on Russian oil exports, while easing COVID curbs in China also contributed to price upticks.
International benchmark Brent crude traded at $86.02 per barrel at 09.55 a.m. local time (0655 GMT), up 0.52% from the closing price of $85.57 a barrel in the previous trading session.
At the same time, American benchmark West Texas Intermediate (WTI) traded at $80.50 per barrel, a 0.65% gain after the previous session closed at $79.98 a barrel.
The Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed on Sunday to adhere to the target of cutting oil output by 2 million barrels per day (bpd) until the end of next year.
The videoconference meeting took place just one day before the EU ban on Russian seaborne crude oil exports and the contentious $60 per barrel price cap for Russian oil that will take effect on Monday.
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"The decision by OPEC+ to continue with its recently agreed 2 million bpd production cut through the end of 2023 is not a surprise, given the uncertainty in the market over the impact of the 5 December EU-Russia crude oil import ban and the G7 price cap," Ann-Louise Hittle, vice president of macro oils at Wood Mackenzie, said in an e-mailed note.
Hittle said the producers’ group faces downside risks from weakening global economic growth and China’s zero-COVID policy.
"The adjustment to the EU ban and price cap is likely to support prices temporarily," she added.
The declining value of the US dollar supported higher oil prices by making trade more appealing for oil buyers using other currencies.
The US dollar index, which measures the greenback’s value against a basket of currencies, including the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc, fell 0.29% to 104.19.
Investors are now waiting for Russia's next reaction to the sanctions after the Kremlin stated that it will not sell oil subject to a Western price cap, even if it means cutting production.
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"We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilize the market," said Russian Deputy Prime Minister Alexander Novak on Sunday.