Prices of Crude Oil Rise as Market Gains 27% in Q3

Prices of Crude Oil Rise as Market Gains 27% in Q3

The global oil market continues to rally as analysts see further upside ahead of the Organisation of Petroleum Exporting Countries and allies members (OPEC) meeting. The oil market remains well supported on the back of solid fundamentals, ING analysts said in a note. 

As the market launched positive in October, investors have begun to weigh market direction amidst sustained supply cuts, while the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting on Wednesday.

International benchmark crude Brent traded at $92.56 per barrel, a 0.39% uptick from the closing price of $92.20 a barrel in the previous trading session on Friday. The American benchmark West Texas Intermediate (WTI) traded at the same time at $91.28 per barrel, up 0.54% from Friday’s close of $90.79 per barrel.

Oil prices rallied during patchy early Asian trade over lingering uncertainties as market players focused on the upcoming OPEC group’s Joint Ministerial Monitoring Committee (JMMC) on Wednesday.

“OPEC+ JMMC is likely to recommend that production cuts are maintained at current levels, due to the uncertain economic outlook, and despite a clearly tightening supply backdrop, with weekly US EIA (Energy Information Administration) inventories likely to show inventories remain very low,” ADM Investor Services’ Chief Global Economist Marc Ostwald said in an e-mailed note.

A rebound in China’s industrial data for September also boosted prices.

According to official data released on Sunday, China’s factory activity increased in September for the first time in six months, adding to a growing number of indicators that the world’s second-largest economy is becoming more stable.

The National Bureau of Statistics (NBS) on Sunday disclosed an increase in China’s official Purchasing Managers’ Index (PMI) to 50.2, exceeding expectations.

The oil market remains well supported with the Brent November contract expiring on Friday at US$95.31/bbl, which saw the oil market finishing the third quarter up a little more than 27% – its strongest performance since the first quarter of 2022, ING said. 

Analysts said fundamentally, there is still further upside with the market set to continue to tighten.

Technically, following the expiry of the November contract on Friday, there is a gap left that the December contract will need to fill. ING analysts said this suggests that at some point, the December contract (which is currently trading around US$92.45/bbl could rise above US$95/bbl. 

The latest positioning data shows that speculators reduced their net long in Brent by 21,989 lots over the last reporting week to 243,542 lots. This was predominantly driven by fresh shorts.

There were also some longs liquidated, suggesting that speculators believe the rally in the oil market has largely run out of steam.  However, it was noted that there was more speculative buying in WTI with speculators increasing their net long by 20,123 lots to 314,519 lots.

In addition, speculators also increased their spreading position by 49,525 to 478,407 lots.  The tightening in US crude oil inventories, specifically at the WTI delivery hub, Cushing appears to have attracted speculators to the market, and in particular to the nearby time spreads.

“For the oil market this week, there will be plenty of attention paid to the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting on Wednesday”.

The market will be eager to see if there are any signs of a change in the group’s output policy, given the recent strength in the market.

“We do not believe that the group will change its output policy. However, what is possible (and a JMMC meeting is not needed for this), is Saudi Arabia starting to ease its additional voluntary supply cut of 1MMbbls/d”, ING analysts said in a note. 

The Saudis have said that there is still concern over Chinese demand. However, PMI data out over the weekend will provide some confidence with China’s manufacturing PMI returning to expansion territory in September for the first time since March, whilst the non-manufacturing PMI remained in expansion territory over the month. Naira Devaluation Deepens Economic Crisis in Nigeria