Oil up more than $2 on tighter supply but OPEC+ talks limit gains

LONDON: Oil prices rose by more than $2 on Wednesday on signs of tighter supply, a weaker dollar and optimism over a Chinese demand recovery.

But the likelihood that OPEC+ will leave output unchanged at its upcoming meeting limited the gains.

Brent crude futures rose $2.34, or 2.82 percent to $85.37 per barrel by 1455 GMT. The more active February Brent crude contract rose by 3.04 percent to $86.81. U.S. West Texas Intermediate (WTI) crude futures climbed $2.43, or 3.11 percent, to $80.63.

Support followed expectations of tighter crude supply. U.S. crude oil stocks dropped by 7.9 million barrels in the week ended Nov. 25, according to market sources citing American Petroleum Institute figures on Tuesday. Official figures are due from the U.S Energy Information Administration on Wednesday. And the International Energy Agency expects Russian crude production to be curtailed by some 2 million barrels of oil per day by the end of the first quarter next year, its chief Fatih Birol told Reuters on Tuesday.

Russia would not supply oil to countries imposing a price cap, Russia's foreign ministry spokeswoman Maria Zakharova said. On the demand side, further support came from optimism over a demand recovery in China, the world's largest crude buyer.

China reported fewer Covid-19 infections than on Tuesday, while the market speculated that weekend protests could prompt an easing in travel restrictions. Guangzhou, a southern city, relaxed Covid prevention rules in several districts on Wednesday.

A fall in the U.S. dollar was also bullish for prices. A weaker greenback makes dollar-denominated oil contracts cheaper for holders of other currencies, and boosts demand.

Fed Chair Jerome Powell is scheduled to speak about the economy and labour market on Wednesday, with investors looking for clues about when the Fed will slow the pace of its aggressive interest rate hikes.

Capping gains, the OPEC+ decision to hold its Dec. 4 meeting signals little likelihood of a policy change, a source with direct knowledge of the matter told Reuters. A virtual meeting puts the focus on the pending European Union deal over the price cap on Russian oil, as well as a Dec. 5 deadline imposed by the bloc for a full embargo on purchases of Moscow's seaborne crude.