Crude oil stable; OPEC+ opts for modest production increase

Oil prices closed higher on Monday, recovering some of last week's losses, after the OPEC+ producer group opted for a modest production increase and investors discounted the possibility of further sanctions on Russian crude.

OPEC+ announced plans to further increase production starting in October, but the amount was lower than some analysts had anticipated.

Reuters reported earlier this month that members were considering another increase.

“The market had anticipated the OPEC+ increase,” said Ole Hansen, head of commodity strategy at Saxo Bank. “We’re seeing a classic reaction of selling on the rumor and buying on the news.”

Brent crude rose 52 cents, or 0.79%, to $66.02 a barrel and U.S. West Texas Intermediate gained 39 cents, or 0.63%, to $62.26 a barrel.

Both benchmark indices had risen more than $1 early Monday. Prices fell more than 2 percent on Friday as a weak U.S. jobs report clouded the outlook for energy demand. They fell more than 3 percent last week.

Mexican export crude gained 42 cents, or 0.70%, to $60.66 a barrel.

OPEC+ agreed on Sunday to further increase oil production starting in October. Saudi Arabia, the world's largest oil exporter, lowered the official selling price of the Arab Light crude it sells to Asia, a day after OPEC+ producers agreed to the output increase.

“Riyadh and its allies have signaled a decisive shift: defending market share is now more important than defending prices,” said Claudio Galimberti, chief economist at Rystad Energy, in a note published Monday. “By allowing supply to return to a market heading toward surplus, OPEC+ is playing offense, not defense. Traders have been warned.”

OPEC+ has been increasing production since April, following years of cuts aimed at supporting the oil market. The latest decision comes despite the likely glut of the oil market during the Northern Hemisphere's winter months.

The eight OPEC+ members will increase production by 137,000 barrels per day starting in October. However, this figure is far below the increases of 555,000 in September and August and 411,000 in July and June.

The impact of the latest increase is expected to be relatively small, as some members have been overproducing. Therefore, the increased production level would likely include barrels already on the market, according to analysts.