Oil settles up despite OPEC+ output hike plan; supply still tight

June 3 (Reuters) – Oil settled higher on Friday, supported by expectations that OPEC’s decision to increase production targets by slightly more than planned will not add that much to global supply which should tighten as China eases COVID restrictions.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, on Thursday agreed to boost output by 648,000 barrels per day (bpd) a month in July and August rather than 432,000 bpd as previously agreed.

Brent crude rose USD 2.11, or 1.8%, to settle at USD 119.72 a barrel by 1338 GMT. US West Texas Intermediate (WTI) crude advanced USD 2, or 1.7%, to USD 118.87. Both benchmarks were up by USD 3 in after hours trading.

US crude notched a sixth weekly gain on tight US supply, which has prompted talk of fuel export curbs or a windfall tax on oil and gas producers.

“Yesterday’s OPEC+ decision and the ongoing acceleration in SPR releases is maintaining crude availability at an ample level especially with demand from the refiners appreciably downsized from a few years ago,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

The output hike could undershoot the pledged amount since OPEC+ divided the hike across its members and still included Russia, whose output is falling as sanctions have prompted some countries to avoid buying its oil since the invasion of Ukraine.

President Joe Biden publicly acknowledged that he may travel to Saudi Arabia soon, a trip multiple sources said was expected and could include talks with Saudi Crown Prince Mohammed bin Salman.

The visit would be aimed at bolstering US-Saudi relations as Biden seeks ways to lower US gasoline prices.

As recently as Wednesday, the White House said Biden still felt bin Salman was a “pariah” for what US intelligence says was his role in the killing and dismembering of a political opponent, Washington Post journalist Jamal Khashoggi, in Turkey in 2018.

Supplies remain tight. On Thursday, a US weekly inventory report showed crude stockpiles fell by a more-than-expected 5.1 million barrels. Gasoline inventories also dropped.

US energy firms this week left oil and natural gas rigs unchanged at 727 in the week to June 3, Baker Hughes Co (BKR) said in its closely followed report on Friday.

Demand is rising too. China’s financial hub Shanghai and capital, Beijing, have relaxed COVID-19 restrictions and the Chinese government has vowed to stimulate the economy.

Oil held gains after US data showed employment increased more than expected in May, signs of a tight labor market.

(Additional reporting by Sonali Paul in Melbourne and Muyu Xu in Singapore; Editing by Kirsten Donovan, Edmund Blair and David Gregorio)