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Global Oil Prices Appreciate to $77.85 After Saudi Announces Plan to Cut Production

Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

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Global oil prices appreciated on Monday morning following Saudi Arabia’s announcement that it will cut crude oil production by 1 million barrels per day (bpd) from the month of July to curb global economic headwinds weighing on the market.

Brent crude oil, against which Nigerian oil is priced, rose by $1.72, or 2.3%, to $77.85 a barrel by 10:48 am Nigerian time while the U.S. West Texas Intermediate crude also climbed by $1.72, or 2.4%, to $73.46.

Both crude oils gained more than 2% on Friday after the Saudi energy ministry announced that the top exporter would reduce output from 10 million bpd in July to 9 million bpd in May 2024. The biggest of such reduction in years.

The voluntary cut is on top of a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supply into 2024 as the OPEC+ producer group seeks to boost flagging oil prices.

OPEC+ pumps about 40% of the world’s crude and has cut its output target by a total of 3.66 million bpd, amounting to 3.6% of global demand.

“Saudi remains keener than most other members in terms of ensuring oil prices above $80 per barrel, which is essential for balancing its own fiscal budget for the year,” said Suvro Sarkar, leader of the energy sector team at DBS Bank.

“Saudi will probably continue doing whatever it takes to keep oil prices elevated … and take calculated pre-emptive steps to ensure the macro concerns potentially affecting demand are negated.”

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by between $1 and $6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

“The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today,” the bank’s analysts added.

Many of the OPEC+ reductions will have little real impact, however, as the lower targets for Russia, Nigeria and Angola bring them into line with their actual production levels.

In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

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Crude Oil

Possible Iran Attack on Israel Boost Oil Prices

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Oil prices recorded a rise in the international market on reports that Iran is preparing to attack Israel again, adding to tensions in the Middle East.

Brent crude rose by $2.10 or 2.91 percent to $74.26 while the US West Texas Intermediate (WTI)  jumped $2.15 or 3.13 percent to $70.76.

Iran is preparing to attack Israel from Iraqi territory in the coming days, possibly before the US presidential election on November 5.

The attack is expected to be carried out from Iraq using a large number of drones and ballistic missiles as attacking through pro-Iran militias in Iraq could be an attempt by Iran to avoid another Israeli attack against strategic targets in the country.

Israel and Iran have engaged in a series of military strikes, part of broader Middle East warfare set off by fighting in Gaza.

Iran had said it would use all available tools to respond to strikes carried out by Israel after Israel’s military jets struck missile factories and other sites near Tehran and in western Iran in retaliation for the country’s October 1 barrage of more than 200 missiles against Israel.

This renewed tension raises worries for the market as Iran is a member of the Organisation of the Petroleum Exporting Countries (OPEC) with production of around 3.2 million barrels per day or 3 per cent of global output.

There were worries that Israel could target Iran’s nuclear facilities but it only attacked just military targets near energy facilities and that eased earlier this week. Now, another retaliation could create provocation that would see them attack the infrastructure.

Market analysts noted that damage to air defences on Iran’s energy infrastructure has increased their vulnerability to future attacks.

Prices also continued to gain on reports that OPEC could delay its planned oil output increase as the wider OPEC+ is scheduled to meet on December 1 to decide its next policy steps.

Meanwhile, in China, the world’s biggest oil importer, manufacturing activity expanded in October for the first time in six months, suggesting stimulus measures are having an effect.

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Oil Prices Rise 2% on Positive Crude Inventories Data, Tight Supply Expectations

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Oil prices rose more than 2 percent on Wednesday after data showed crude and inventories fell unexpectedly last week and reports that the Organisation of the Petroleum Exporting Countries and its allies, OPEC+ may delay a planned oil output increase.

Brent crude futures settled up $1.43, or 2.01 percent, at $72.55 a barrel and the US West Texas Intermediate (WTI) crude rose $1.4, or 2.08 percent to $68.61.

The US Energy Information Administration (EIA) reported an inventory draw of a modest half a million barrels for the week to October 25.

The change in oil stocks compared with a build of 5.5 million barrels for the previous week, pressured oil prices at the time.

The American Petroleum Institute (API), meanwhile, on Tuesday reported estimated inventory draws across crude and fuels, helping prices move higher for a time. However, they remained subdued due to expectations of a ceasefire in the Middle East.

The country’s petrol stocks shed 2.7 million barrels in the week to October 25, with production at an average of 9.7 million barrels daily. These figures compared with an inventory build of 900,000 barrels for the previous week, when production stood at an average of 10 million barrels daily.

Pressure also came as the market learned that OPEC+ could delay a planned oil production increase in December by a month or more because of concern over soft oil demand and rising supply.

Traders are betting that OPEC+ will hold off on the planned increase, deferring to Saudi Arabia’s top-down approach since the country acts as the de facto leader of the group and has always stepped in to help the alliance when it is underperforming.

The group is scheduled to raise output by 180,000 barrels per day in December. OPEC+ has cut output by 5.86 million barrels per day, equivalent to about 5.7 per cent of global oil demand.

OPEC Monthly Oil Market Report downgraded demand growth for 2024 to 1.9 million barrels per day while demand forecasts for 2025 slipped another 102,000 barrels per day to 1.6 million barrels per day.

China, meanwhile, ramped up imports by 16 per cent month over month in August, but the rise still falls short of August 2023 levels, keeping a lid on demand and by extension, the market.

OPEC+ is scheduled to meet on December 1 to decide its next policy steps.

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Crude Oil Prices Dip Further as Israel Plans End to Lebanon Conflict

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Oil prices extended losses on Tuesday after Israel signalled a diplomatic solution to the war in Lebanon, adding to a more than 6 per cent drop in the previous session on Monday after Israel carried out its retaliatory strike on Iran at the weekend

Brent crude futures settled down 30 cents, or 0.4 per cent at $71.12 a barrel while the US West Texas Intermediate (WTI) crude shed 17 cents, or 0.3 per cent to $67.21 a barrel.

Israel’s Prime Minister, Mr Benjamin Netanyahu will hold a meeting on Tuesday evening with ministers and the heads of the country’s military and intelligence community about talks for a diplomatic solution to the war in Lebanon.

Recall that Israel is currently embroiled in fighting with two separate groups, Hamas and Hezbollah backed by Iran in the Middle East.

Meanwhile, Iran said it will use all available tools to respond to Israel’s weekend attack. If this happens, it could create a fresh wave of tensions.

Also pressuring prices is the declining oil demand from China, the world’s largest crude oil importer, which continues to impact global oil consumption and prices.

Market analysts note that demand will return to normal growth rates after Chinese President Xi Jinping introduces new stimulus measures to the economy.

According to the American Petroleum Institute (API), crude oil inventories in the US fell by 573,000 barrels for the week ending October 25. The API reported a 1.643-million-barrel build in crude inventories for the week prior.

So far this year, crude oil inventories in the world’s largest oil producer have slumped by just over 6 million barrels since the beginning of the year, according to API data.

Official US government data from the Energy Information Administration (EIA) is expected later on Wednesday.

The US Federal Reserve will cut interest rates by 25 basis points on November 7. Lower interest rates cut the cost of borrowing, which can buoy economic activity and boost oil demand.

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