Brent Rises as Saudi Moves to Cut Production
Brent crude futures rose more than 1% to above $88.5 per barrel on Tuesday, having fallen more than 5% at one point in the previous session, after Saudi Energy Minister Prince Abdulaziz bin Salman signalled the kingdom is ready to reduce production further to balance supply and demand if needed.
On Monday, the international oil benchmark dropped to as low as $82.31, the lowest in 8 weeks, following a report that OPEC+ was considering an output increase next month, before recovering those losses after Saudi Arabia denied the news.
Meanwhile, the demand outlook remains mired by resurgent virus outbreaks in top crude importer China that prompted authorities to reinstate some Covid restrictions.
Investors also contended with the prospect of even tighter financial conditions after US Federal Reserve officials reiterated their commitment to fighting inflation.
A stronger US dollar weighed on most of the commodities complex yesterday. The oil market also saw significant volatility after reports that OPEC+ is looking to increase supply at its next meeting. These reports were later denied by Saudi Arabia.
Oil prices were whipsawed yesterday with ICE Brent trading in almost a US$6/bbl range. The catalyst for the increased volatility was a report from the WSJ suggesting that OPEC+ is looking to possibly increase output by as much as 500Mbbls/d when the group next meets on 4 December.
However, this report was quickly denied by the Saudis, and this led the market to recoup most of its losses. It would be an odd move from OPEC+ to increase supply when there is still so much demand uncertainty, and while there is still so little clarity on what the full impact of the EU ban on Russian oil will be.
“We believe it is unlikely that the group makes any further changes to its deal after reducing production targets by 2MMbbls/d at their meeting in October. If we are to see changes, this would likely only be next year when there is more clarity on Russian supply”, ING Economics analysts said in a note.
Russia’s Deputy Prime Minister, Alexander Novak, has once again made it clear that Russia will not supply crude oil or refined products to countries which follow the G-7 price cap. READ: Oil Rises as Saudi Arabia Sees OPEC+ Production Cuts
Instead, oil will either be redirected to those nations who choose to ignore the price cap or Russian output will be reduced. It is expected that the market will receive more clarity on the G-7 price cap this week, including the level at which the group plans to set the cap.
# Brent Rises as Saudi Moves to Cut Production