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Oil settles back after gains made on OPEC+ abiding by output cuts

FILE PHOTO: A TORC Oil & Gas pump jack near Granum

By Aaron Sheldrick

TOKYO (Reuters) – Oil prices held onto most of their overnight gains on Tuesday after the OPEC+ producer grouping said members were almost fully complying with agreed output cuts to support prices amid a drop in demand for fuels due to the coronavirus pandemic.

Brent crude was down 18 cents, or 0.4%, at $45.19 a barrel by 0702 GMT, after gaining 1.3% on Monday.

U.S. crude was down 26 cents, or 0.6%, at $42.63 a barrel, having risen 2.1% in the previous session.

Compliance with OPEC+ oil output cuts was seen at around 97% in July, two OPEC+ sources told Reuters. The oil producers curbed output by record amounts to reduce worldwide inventories, as demand collapsed due to the pandemic.

The Organization of the Petroleum Exporting Countries (OPEC) and allies known as OPEC+ in August cut their agreed output to 7.7 million barrels per day (bpd) from 9.7 million bpd previously.

Oil prices started picking up in recent months, prompting Australian miner and oil producer BHP to strike a positive note said as it announced earnings on Tuesday.

“We believe that the most significant risks to the physical (oil) market have now passed,” BHP said.

“Prices may well build upon their recent recovery, if mobility continues to improve globally,” it added, while warning that “the pace of gains though could be modest given potential headwinds from supply returning.”

Japan, the world’s third-biggest economy is likely to contract more than previously expected due to the pandemic, analysts said.

Looking for clues to future output plans, traders were focused the meeting of an OPEC+ panel on Wednesday, a day later than previously planned.

Russian Energy Minister Alexander Novak will join the video meeting despite testing positive for COVID-19, the country’s energy ministry said on Tuesday.

The U.S. Energy Information Administration last week reduced its global oil demand forecast, suggesting the drawdown on global inventories had been less than expected.

(Reporting by Aaron Sheldrick and Sonali Paul; Editing by Lincoln Feast & Simon Cameron-Moore)

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