FIS: Crude Oil Market Overview: Crude plummets with mixed OPEC messages
Oil prices plummeted and pulled down ranges after mixed messages regarding OPEC oil production, providing a short-term bearish sentiment in the market.
Brent saw a high of $95.77/bbl on 15th November and a low on Monday of $82.31/bbl, a $5/bbl price crash after rumours that OPEC would increase production by 500,000 b/d. This was quite a surprise, given their preference for cutting throughout the year. Saudi Arabia, United Arab Emirates, and Kuwait denied that these conversations took place, causing a massive buy-up of around 15 million bbls of Brent crude futures in three minutes, Freight Investor Services reported. Oil prices then rose back to settle at the $87/bbl mark. These have still been the lowest values seen since March.
Easing the zero-Covid policy in China now seems like a dream as cases spiral towards record highs again. There have been 28,000 new Covid cases in a day, with outbreaks in Beijing and Chongqing growing, Financial Times reported. Since then, multiple bodies, such as the International Energy Agency (IEA), have cut their fuel demand outlook. Goldman Sachs cut their oil price forecasts and claimed that the EU embargo on Russian oil next month was a contributing factor. It will be interesting to see what happens to Russian oil if Chinese demand continues to decrease. Bloomberg reported that Russia has already lost over 90% of its top European market.
Russian oil shipments to northern Europe have come down to below 100,000 b/d, compared to 1.2 million b/d before the war. 75% of Russian export volumes are heading to Asia, and mainly to China and India. As the sanctions in December draw nearer, it has already been reported that Indian refiners are scrambling to stock up on Russian oil before December 5th. The Chinese lockdown even more indirect uncertainty to crude oil, product prices, and economic impact.
Oil has long been connected to economic recessions and expansions. The price decline usually suggests investors worry about the global economy, such as a recession in 2023. One of the contributors to a price reduction is an increase in supply, such as the release of strategic oil reserves. The U.S. has been doing this multiple times in the year to balance OPEC’s tight supply and refusal to increase their production. Last week the Biden Administration asked Congress to approve a $500 million investment into four sites of America’s Strategic Petroleum Reserve for “modernisation”, suggesting the risk of a shortfall, Reuters reported.
There are a lot of geopolitical moments that could bring about another dramatic price change, like Monday 21st late afternoon. OPEC+ meet on December 4th, and on December 5th, the European ban on Russian crude is set to start, as well as the G7 plan that will allow shipping service providers to help export Russian oil at reduced prices, according to Reuters. After Monday’s warning, this would be a crucial period to review protection against price changes.
Written by Mopani Mkandawire, Archie Smith, and Jack Shilling, Edited by Mopani Mkandawire (https://freightinvestorservices.com/fis-live/).
