Brent falls despite OPEC's output cut extension

The front-month ICE Brent contract has moved $0.58/bbl lower on the day, to trade at $72.74/bbl at 09.00 GMT.

PHOTO: Oil barrels. Getty Images

Upward pressure:

Brent’s price found some support after eight members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) collectively decided to postpone the gradual easing of production cuts that was scheduled to begin in October.

OPEC+ members, including Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, Oman, and the UAE, have decided to extend the ongoing output cut of 2.2 million b/d for two more months. The group now plans to gradually unwind the production cuts beginning 1 December and continuing until November 2025.

“This [OPEC’s announcement] was not surprising, considering the pressure oil prices have been under in recent months,” ANZ Bank’s senior commodity strategist Daniel Hynes remarked.

On the demand side, Brent found some support after the US Energy Information Administration (EIA) reported a sizeable decline in crude inventories. Commercial crude oil inventories in the US dropped by 6.87 million bbls to touch 418 million bbls on 30 August, according to the EIA.

A drop in crude stocks is considered a positive indication of oil demand growth in the world’s largest oil consuming nation, according to market analysts. Yesterday’s EIA inventory report “was fairly constructive,” two analysts from ING Bank noted.

Downward pressure:

The global oil market’s sentiment is still negative as demand growth concerns from top oil consumers, China and the US, have outweighed any signs of supply tightness.

“Oil prices are giving into weak demand concerns out of China,” Price Futures Group’s senior market analyst Phil Flynn remarked.

Manufacturing Purchasing Managers' Index (PMI) readings in China and the US came in at 49.1% and 47.2% in August, respectively. A PMI reading below 50 indicates weak economic health and a contraction in the manufacturing sector. It also highlights demand growth concerns, ultimately weighing down on prices of commodities like oil.

Brent’s price has “taken a beating after breaking below key technical levels, with China demand concerns, weak global refinery margins,” analysts from Saxo Bank noted.

By Aparupa Mazumder

Please get in touch with comments or additional info to news@engine.online