By Laila Kearney

NEW YORK (Reuters) -Oil prices held at three-week highs on Thursday after OPEC+ agreed to tighten global crude supply with a deal to cut production targets by 2 million barrel per day (bpd), the largest reduction since 2020.

Brent crude futures gained 88 cents, or 0.9%, to $94.25 per barrel by 11:19 a.m. EDT (1519 GMT) after settling 1.7% up in the previous session. U.S. West Texas Intermediate (WTI) crude futures rose 79 cents, or 0.9%, to $88.55 after closing 1.4% up on Wednesday.

The agreement between the Organization of Petroleum Exporting Countries (OPEC) and allies including Russia, a group known collectively as OPEC+, comes ahead of a European Union embargo on Russian oil and would squeeze supplies in an already tight market, adding to inflation.

“We believe that the price impact of the announced measures will be significant,” said Jorge Leon, senior vice-president at Rystad Energy.

“By December this year Brent would reach over $100/bbl, up from our earlier call for $89.”

Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million bpd. Saudi Arabia’s share of the cut is about 0.5 million bpd.

Several OPEC+ members have been struggling to produce at quota levels because of underinvestement and sanctions.

The output cut comes at the same time the U.S. Federal Reserve and other central banks are raising interest rates in an attempt to ease inflation. Higher oil prices will likely cause further demand destruction, which was keeping prices from moving higher, said John Kilduff, partner at Again Capital LLC in New York.

“That’s what’s cutting back the other way and why prices have stabilized for WTI just under $90,” Kilduff said.

U.S. President Joe Biden’s administration criticized the deal as “shortsighted” and the White House said Biden would continue to assess whether to release more supplies from the Strategic Petroleum Reserve to lower prices.

The White House said it would consult Congress on additional paths to reduce the control OPEC and its allies hold over energy prices in an apparent reference to legislation that could expose members of the group to antitrust lawsuits.

“This quota reduction is somewhat at odds with global crude oil inventories that are already low, and mostly still trending lower,” U.S. bank Morgan Stanley said.

“Nevertheless, OPEC+ emphasised the significant uncertainty over oil demand into 2023, highlighting recent sharp downward revisions to GDP forecasts and rising recession probabilities.”

Separately on Wednesday, Russian Deputy Prime Minister Alexander Novak said Russia could cut oil output in an attempt to offset the effects of price caps imposed by the West over Moscow’s actions in Ukraine.

A draw in U.S. oil stockpiles last week also supported prices. Crude inventories dropped by 1.4 million barrels to 429.2 million barrels in the week ended Sept. 30, the Energy Information Administration said. [EIA/S]

(Additional reporting by Ahmad Ghaddar and Florence Tan in SingaporeEditing by David Goodman, Kirsten Donovan, Chizu Nomiyama)