Speculations of further OPEC+ output cuts push Brent higher

The front-month ICE Brent contract has inched $0.64/bbl higher on the day, to $81.58/bbl at 09.00 GMT.

PHOTO: Getty Images

Upward pressure:

“The recent price crash in oil led by hedge funds is raising the possibility of OPEC’s revenge,” Phil Flynn, senior market analyst at Price Futures Group said in a recent report.

Market participants are now speculating that OPEC+ will not only extend its production cuts, but even announce additional reductions at the ministerial meeting on Sunday, Flynn asserted. “Not only because some of the members are unhappy with the war in Gaza but also because they believe that speculators have taken control of this market,” he said.

In fact, OPEC's monthly oil report last week substantiated this notion. The coalition pointed out that the sharp fall in crude oil prices during the first week of October was largely driven by investors capitalising on profit-booking from the September price rise.

OPEC remains optimistic about demand growth next year, in contrast to a recent International Energy Agency (IEA) prediction. OPEC forecasts global oil demand to grow by 2.25 million b/d next year, while the IEA sees it slowing down to just 930,000 b/d from current levels of 2.4 million b/d.

Downward pressure

Meanwhile, rising crude oil production in the US and other non-OPEC countries has alleviated some concerns about a global supply shortage. The Energy Information Administration (EIA) predicts non-OPEC production to rise to 68.18 million b/d in 2023, from 65.82 million b/d in 2022. The figure is expected to rise even further next year, to 69.32 million b/d.

The number of US oil rigs rose by six units to 500 last week, after falling for two consecutive weeks, according to Baker Hughes. A rise in US oil rigs indicates increased domestic production capacity.

Commercial US crude oil inventories have gained by 17 million bbls in the last two weeks, according to EIA.

UAE energy minister Suhail Mohamed Faraj Al Mazrouei insisted that the Israel-Hamas conflict will not directly affect oil supply in the Middle East in the short-term, according to Daniel Hynes, senior commodity strategist at ANZ. “This capped any potential geopolitical risk premium,” Hynes noted.

By Konica Bhatt

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