- Oil Advances as Saudi Purge Bolsters Pro-OPEC Cut Crown Prince
Oil climbed from the highest close in two years as an anti-graft probe in Saudi Arabia was seen to consolidate power in the hands of Crown Prince Mohammed bin Salman, who’s backed OPEC-led output cuts.
Futures rose as much as 1.2 percent in New York, gaining for a third session. Saudi Arabia’s King Salman ordered the purge of royals and top officials in the world’s biggest crude exporter, including a member of the royal council overseeing the state oil company and one of its directors. In the U.S., the rig count dropped to the lowest level since May, according to Baker Hughes.
The crown prince “has already been outspoken in his support for an extension to the current OPEC cuts,” said Edward Bell, an analyst at Emirates Nbd Bank Pjsc. “As one of the world’s largest producers and exporters undergoes a transformation of its economy, some uncertainty and political risk is bound to be encountered along the way, which would be supportive for prices.”
Oil has risen for four straight weeks on signs that global inventories are shrinking and the Organization of Petroleum Exporting Countries and allied producers will extend their glut-reduction accord beyond its March expiry. Saudi Arabia, Iraq and Kuwait — which together pump more than 50 percent of OPEC’s crude — signaled firm support for an extension.
West Texas Intermediate for December delivery advanced as much as 64 cents to $56.28 a barrel on the New York Mercantile Exchange and was trading at $56.17 as of 7:53 a.m. in London. Total volume traded was about 15 percent above the 100-day average. Prices on Friday added 2 percent to settle at $55.64, the highest since July 2015.
Brent for January settlement added as much as 83 cents, or 1.3 percent, at $62.90 a barrel on the London-based ICE Futures Europe exchange. Prices increased 2.4 percent to $62.07 on Friday, the highest close since July 2015. The global benchmark crude traded at a premium of $6.36 to January WTI.
Security forces arrested 11 princes, four ministers and dozens of former ministers and prominent businessmen, according to Saudi media and a senior official who spoke on condition of anonymity.
“Anything to do with Saudi Arabia is a bit unsettling for the oil market, but there’s no indication at this stage of any issues that may lead to a supply disruption,” said Ric Spooner, an analyst at CMC Markets in Sydney. “Oil is continuing to probe for a level that will attract new short-term production, particularly from U.S. shale, and we haven’t yet seen evidence of that.”
- U.S. rigs targeting crude dropped by eight to 729 last week, according to data Friday from Baker Hughes.
- Hedge funds raised their Brent net-long position — the difference between bets on a price increase and wagers on a drop — by 4.6 percent in the week ended Oct. 31, according to data from ICE Futures Europe.
- Venezuela’s sudden demand to renegotiate its billions in debt could complicate life for its two biggest oil patrons, China and Russia.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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