OPEC and its allies are expected to press on with their planned revival of oil production when they meet next week, as prices bounce back from their August stumble.
The coalition led by Saudi Arabia and Russia is gradually restoring the vast amount of crude production halted during the pandemic, and will probably ratify the next monthly installment when it gathers on Sept. 1, according to a Bloomberg survey of traders and analysts. Several OPEC+ delegates privately predict the same outcome.
Crude markets faltered earlier this month as the resurgent pandemic threatened demand in China and the U.S. But prices have since recovered after fuel use proved resilient to the latest coronavirus wave, giving the Organization of Petroleum Exporting Countries and its partners more breathing space.
“Uncertainties over the world economy and the growth recovery in China have largely peeled away,” said Ed Morse, head of commodities research at Citigroup Inc. “There’s good evidence that the bottom in oil prices was temporary and overdone, and if the recovery continues, OPEC+ would likely stick to the plan.”
The cartel has already restarted roughly 45 percent of the unprecedented production volume shuttered last spring. Under a plan spearheaded by Saudi Energy Minister Prince Abdulaziz bin Salman, OPEC+ will return the rest in monthly increments of 400,000 barrels a day through to late 2022.
Seventeen of 22 traders, analysts and refiners surveyed by Bloomberg expected no change to this schedule at Wednesday’s meeting, meaning October’s hike will go ahead as planned.
The OPEC+ coalition’s careful stewardship of the oil market has kept prices high enough to support the revival of the global petroleum industry, and largely avoided the kind of spike that could threaten the world’s economic recovery.
Yet the group has still faced pressure from all sides.
Earlier this month, its plans for supply increases came into question. International crude prices sank about $11 a barrel — roughly 15 percent — in the first three weeks of August as China reimposed lockdowns. The International Energy Agency, a prominent forecaster, slashed its demand outlook for the rest of the year and warned of a renewed surplus in 2022.
To the surprise of many OPEC-watchers, the group also found itself pulled in the other direction as the White House publicly urged it to revive production more quickly in order to cool elevated gasoline prices. Yet several OPEC+ nations said they didn’t hear of a direct request, and analysts concluded the President Joe Biden’s message was targeted to a domestic audience.
“I think they will send Biden’s call for additional barrels straight to voice-mail,” said Helima Croft, chief commodities strategist at RBC Capital Markets.
OPEC+ has wrong-footed observers several times this year, freezing supplies when an increase was anticipated and vice versa. But so far this meeting is on track to be a smoother affair than the previous one, allowing the 23-nation OPEC+ alliance to maintain the course.
The group doesn’t face the imminent prospect of renewed supplies from Iran, as talks to lift U.S. sanctions have stalled. And oil demand appears to be robust enough to absorb the extra barrels.
Traffic on China’s typically busy city streets appears to be recovering as the key crude-importing nation quashes a resurgence in Covid-19 cases. In the U.S., gasoline consumption is holding up as drivers try to make the most of the summer holiday season. Flying is even making a comeback in India as people flock to tourist spots after months of lockdown.
Brent crude futures, an international benchmark, have rebounded to $72 a barrel, giving some respite to the battered finances of oil producers.
“As long as the Chinese government appears to have the latest Covid outbreak under control, I think they stay with the current plan and reiterate their ability and willingness to adjust as needed,” said Croft.
Oil Holds Near Highest Since 2018 With Global Markets Tightening
Oil held steady near the highest close since 2018, with the global energy crunch set to increase demand for crude as stockpiles fall from the U.S. to China.
Futures in London headed for a third weekly gain. Global onshore crude stocks sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.
China on Friday sold oil to Hengli Petrochemical Co. and a unit of PetroChina Co. in the first auction of crude from its strategic reserves said traders with the knowledge of the matter. Grades sold included Oman, Upper Zakum and Forties.
Oil has rallied recently after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.
“Underpinning the latest bout of price strength is a tightening supply backdrop,” said Stephen Brennock, an analyst at PVM Oil Associates Ltd.
Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive about the market outlook.
At the same time, the premium options traders are paying for bearish put options is the smallest since January 2020, another indication that traders are less concerned about a pullback in prices.
Oil Gains 1 Percent on Possible Tight Supply
Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.
Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.
Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.
“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.
Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.
“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.
While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.
Crude Oil Drops as U.S Dollar Extends Gain
Oil prices declined on Monday after the United States Dollar rose to a three-week high and the U.S oil rig count increased amid drop in U.S. Gulf of Mexico output.
Brent crude oil, against which Nigerian crude oil is priced, sheds $1.03 or 1.37 percent to $74.31 per barrel at 9.38 am Nigerian time. While the U.S West Texas Intermediate oil declined by $1.18 or 1.64 per barrel to $70.79 a barrel.
The recent increase in dollar strength against global currencies has dragged on crude oil outlook as energy investors cut down on imports to avoid possible market headwinds. Strong U.S. dollar priced crude oil is more expensive for holders of other currencies.
U.S dollar rose to a three-week high after retail sales unexpected rose by 0.7 percent in the month of August. The increase bolstered expectations that the U.S Federal Reserve will start cuttiing down on asset purchases later this year.
“U.S. consumption is not slowing as quickly as it appeared a month ago despite the fading stimulus, and the Delta variant did not much affect the industries feeding into retail sales,” said Chris Low, chief economist at FHN Financial in New York. “The economy continued to hum in August.”
According to the researchers at ING Bank, strong US dollar over the last few days has provided some headwinds to the market.
Also, an increase in U.S rig count to 512 in the week ended September 17, 2021 clouded the oil market. Oil rige rose by 9, the highest since April 2020.
Still, as at Friday 23 percent of U.S. Gulf of Mexico crude output, or 422,078 barrels per day, remained shut, stated the Bureau of Safety and Environmental Enforcement.
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