Oil climbs as Saudi Arabia warns of OPEC output cuts

Oil rose on Tuesday as renewed concerns over tight supply dominated market sentiment after Saudi Arabia warned that the major oil producer could cut output to correct a recent oil price decline.

U.S. West Texas Intermediate crude futures gained $1.75, or 1.94%, to $92.24 a barrel. 

Brent crude futures advanced $1.73, or 1.79%, to $98.32 a barrel after a choppy session on Monday when they dropped by more than $4 before paring losses to trade near flat.

The benchmarks are down about 12% and 8% this month, respectively, amid fears about a global recession and fuel demand.

The Organization of the Petroleum Exporting Countries stands ready to reduce production to correct the recent oil price fall driven by poor futures market liquidity and macro-economic fears, which has ignored extremely tight physical crude supply, OPEC’s leader Saudi Arabia said on Monday.

Saudi state news agency SPA cited Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman as telling Bloomberg that OPEC+ has the means and flexibility to deal with challenges.

With Saudi Arabia standing out to defend oil prices, the market is likely to take the chance to build long positions, said analysts from Haitong Futures, adding that the outcome of the Iranian nuclear deal remains a big uncertainty.

Iran accused the United States on Monday of procrastinating in efforts to revive Tehran’s 2015 nuclear deal – a charge denied by Washington, which said a deal was closer than two weeks ago because of apparent Iranian flexibility.

Meanwhile, Europe faces fresh disruption to energy supplies due to damage to a pipeline system bringing oil from Kazakhstan through Russia, adding to concerns over a plunge in gas supplies.

The current tight demand-supply is underscored by U.S. crude inventory in the Strategic Petroleum Reserve (SPR) at its lowest level in more than 35 years, Yeap Jun Rong, market strategist from IG Group, said in a note.

On U.S. supply, market participants are awaiting industry data due at 4:30 p.m. ET on Tuesday. U.S. crude oil and gasoline stockpiles likely dropped last week, while distillate inventories edged up, a preliminary Reuters poll showed on Monday.