Oil Maintains Uptrend Ahead of OPEC Report

Oil Maintains Uptrend Ahead of OPEC Report

Oil keeps an uptrend ahead of the Organisation of Petroleum Exporting Countries (OPEC) monthly oil market report, which will include August production numbers for the group, along with their latest outlook for the oil market.

Brent is holding above US$90 per barrel as the market tightens, whilst extended maintenance in Norway has supported European gas prices.

The tightness in the market and expectations that this will continue through until the end of the year suggest that prices will remain well supported, ING Warren Patterson and Ewa Manthey said in a note.

International benchmark crude Brent traded at $90.75 per barrel, representing a 0.12% gain from the closing price of $90.64 a barrel in the previous trading session on Monday.

The American benchmark West Texas Intermediate (WTI) traded at the same time at $87.48 per barrel, up 0.22% from the previous session’s close of $87.29 per barrel.

Brent climbed to $91.45 a barrel on Monday, still hovering around 10-month highs, as investors fretted about tightening supplies following Russia and Saudi Arabia’s plans to limit output until the end of the year.

The OPEC+ group’s major producers also stated that their output curbs could be revised up or down depending on market conditions.

The OPEC group will release its monthly oil market report that will show the group’s updated production plan as well as its demand forecast for this year and 2024.

However, the rising value of the US dollar limited price increases. When the US dollar strengthens against other currencies, dollar-indexed crude oil becomes more expensive and consequently less lucrative for holders of other currencies.

Boosting demand fears and blunting further gains, the European Union downgraded its economic outlook on Monday, projecting slower growth for EU countries in 2023 and 2024.

Investors are now awaiting a set of data in the US, including Wednesday’s consumer price index (CPI) report, to seek direction and anticipate the Fed’s next move on interest rates.

If US crude oil inventory data to be released by the Energy Information Administration on Wednesday reveals a stockpile build, then it is expected that demand will fall, weighing on prices.

However, where there is even more strength in the oil market is in middle distillates, where the prompt ICE gasoil crack is trading above US$40/bbl, whilst the outright price is back above US$1,000/t.

Although to be fair, this is the Sep-23 contract, which expires today. However, there is strength along the curve with the market deeply backwardated, highlighting the tightness in the market at the moment, ING commodities strategists said.

Reports that Russia will cut seaborne exports of diesel by around 25% in September due to refinery maintenance and to ease domestic fuel prices have only provided further upside.

“The concern for the market is that in most regions inventories are tight as we head closer to the Northern Hemisphere winter – a period where we usually see stronger demand for middle distillates.

“Therefore, we believe that middle distillates are likely to remain well supported in the coming months, whilst this tightness suggests that the market will also be volatile”, ING noted.

Analysts believe that European gas prices remain well supported with TTF settling close to 3.9% higher yesterday. Australian LNG strike action will be supportive, however, extended maintenance at Norwegian fields is likely the bigger driver.

Maintenance work at the Troll field has been extended yet again, which is impacting around 125mcm/day. This work is expected to go on until 13 September and then capacity will be brought back gradually in the coming days and weeks.

Norwegian flows are currently around 135mcm/day, down from around 330mcm/day in mid-August. Looking at the calendar day today, OPEC will release its monthly oil market report, which will include August production numbers for the group, along with their latest outlook for the oil market.

The report will likely continue to show expectations that the market will tighten for the remainder of the year. Then later in the day, the EIA will release its Short Term Energy Outlook, which will include their latest US oil production estimates for this year and 2024.

Given the downward trend in US drilling activity, ING commodities analysts said it is difficult to see any large upward revisions in output estimates.#OPEC Oil Report Naira Devaluation Deepens Economic Crisis in Nigeria