Oil Rebounds Ahead of OPEC+ Meeting
Crude Oil

Oil prices traded above $80 per barrel early on Thursday, recovering from market pressures.  The oil market came under further pressure yesterday with sentiment turning increasingly negative.

Fundamentals are proving not to be as constructive as expected in the short term. However, we still see higher prices through 2024

ICE Brent traded at $80.11 per barrel, up by 0.71% from the closing price of $79.54 a barrel in the previous trading session on Wednesday. The American benchmark West Texas Intermediate (WTI) traded at the same time at $75.82 per barrel, up 0.65% from Wednesday’s close of $75.33 per barrel.

The downward pressure in oil continued yesterday with ICE Brent settling more than 2.5% lower, leaving it below US$80/bbl. This is the first time since July that Brent has settled below this level.

A lot of support has evaporated after the market broke below the 200-day moving average earlier this week, according to ING commodities strategists’ note.

Timespreads also continue to point towards weakness. The prompt ICE Brent spread is dangerously close to flipping into contango and is trading in a backwardation of just US$0.13, down from around US$0.60 earlier this month, ING note reads.

For WTI, the prompt spread is in even bigger danger of slipping into contango with the spread trading flat this morning.

The degree of weakness seen in recent days will be a concern for OPEC+, particularly as we move into 1Q24, a period where we see the market returning to surplus in the absence of an extension to Saudi cuts.

Noise from the group, particularly Saudi Arabia will likely grow, given that we are now trading below the Saudi’s fiscal breakeven level, a level they have been keen to keep oil above.

ING commodities strategists said in the note that it is looking very likely that both Saudi Arabia and Russia will extend their additional voluntary cuts through into early next year.

Analysts said whether Russia actually sticks to its announced cuts is another story, given that their seaborne crude oil exports have been edging higher in recent months.

The demand side is also becoming a concern, which is evident with the broader weakness seen in refinery margins since the end of the northern hemisphere summer.

Weaker margins suggest possibly weaker end-use demand, which ultimately could feed through to weaker crude oil demand from refiners.

In addition, there are worries over Chinese demand going into the winter, though for much of the year, while there has been concern about the Chinese economy, oil demand numbers have performed strongly up until this point.

Elsewhere, the Israeli-Palestinian conflict’s intensification has raised supply concerns, which are continuing to pressure prices and carry a risk of destabilizing the region and sabotaging oil supply routes.

In an official letter to Rafael Mariano Grossi, the director-general of the International Atomic Energy Agency (IAEA), on Wednesday, Palestinian Foreign Minister Riyad al-Maliki stated that a nuclear threat is ‘completely consistent with the prevailing discourse in Israel’ against Palestinians, according to the Palestinian official news agency.

However, Lisa Cook, a member of the US Federal Reserve Board of Governors, said on Wednesday that rising geopolitical tensions could exacerbate China’s and Europe’s already weak growth rates, which could alter the trajectory of the US economy and prevent further price increases.

Data on a fall in China’s Price Index, which fell 2.7% yearly and 0.2% monthly in October, relieved oil prices and once again raised deflationary concerns.

Meanwhile, contrary to market anticipations of a loss of 300,000 barrels in US crude oil stockpiles, the American Petroleum Institute (API) announced Tuesday that inventories had increased by an estimated 11.9 million barrels.

This indicated a fall in the world’s largest oil-consuming nation’s oil consumption, which in turn limited upward price pressures.  Naira Slides as Nigerians Import Appetite Rises