By Stephanie Kelly
NEW YORK (Reuters) -Oil prices jumped on Tuesday, settling up about 2% on the possibility OPEC+ will extend or deepen supply cuts, a storm-related drop in Kazakh oil output and a weaker U.S. dollar.
Brent crude futures settled up $1.70, or 2.1%, at $81.68 a barrel. U.S. West Texas Intermediate (WTI) crude gained $1.55, or 2.1%, to settle at $76.41.
OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, is due to hold an online ministerial meeting on Thursday to discuss 2024 production targets.
The talks will be difficult and a rollover of the previous agreement is possible rather than deeper production cuts, four OPEC+ sources said.
The market tumbled last week when OPEC+ pushed back the original date for its meeting to iron out differences on production targets for African producers.
"We believe the market's primary focus surrounds the continuation of Saudi Arabia's additional voluntary cuts of 1 million barrels per day," Walt Chancellor, an energy strategist at Macquarie, said in a note. "We believe an extension of these cuts into Q2/Q3 2024 may represent the threshold for this meeting being viewed bullishly."
One possible compromise could involve Angola and Nigeria accepting reduced production targets for a few months if targets for the other countries were likewise lowered, said Commerzbank (ETR:CBKG)'s Carsten Fritsch.
"According to delegates, Saudi Arabia is demanding lower production quotas from the other OPEC+ countries. While Kuwait has signaled that it would be willing to do so, some countries are apparently resisting any such move."
The United Arab Emirates is likely to oppose this, given that its 2024 production target was increased at its urging when OPEC+ held its previous meeting in early June, he added.
Oil also found support from a weak dollar, an expected decline in U.S. crude inventories and the drop in Kazakh output.
Kazakhstan's largest oilfields have cut their combined daily oil output by 56%.
U.S. crude oil inventories dropped by 817,000 barrels last week, according to market sources citing American Petroleum Institute figures. [API/S]
Weekly U.S. government data on stockpiles is due on Wednesday.
The U.S. dollar sank to a three-month low on Tuesday after U.S. Federal Reserve Governor Christopher Waller flagged the possibility of lowering the Fed policy rate in the months ahead if inflation declines further.
A weaker dollar typically bolsters oil demand, making dollar-denominated oil less expensive for buyers using other currencies.
In the Middle East, Israeli forces and Hamas fighters held their fire beyond the original deadline of a truce, extended at the last minute by at least two days to let more hostages go free.