OPEC+ production cuts support crude oil prices
Head of Commodity Strategy
Summary: Crude oil trades near the top of its current range with the lack of visibility regarding the short-term direction likely to keep the market mostly rangebound with Brent having settled into the 90’s while WTI is struggling to break above $90 per barrel. Key drivers remain the supply impact of OPEC+ production cuts and upcoming EU sanctions against Russian oil while the demand side is focusing on the timing of Covid restrictions being lifted in China and a general worry about the global economic outlook
Crude oil trades near the top of its current range with the lack of visibility regarding the short-term direction likely to keep the marketmostly rangeboundwith Brent having settled into the 90’s while WTI is struggling to break above $90 per barrel. Key market focus remains the supply impact of OPEC+ production cuts and upcoming EU sanctions against Russian oil as well as a tight product market while the demand side is torn between the prospect of a pickup in Chinese demand once Covid restrictions are lifted and worries that global economic activity will continue to weaken in the coming months.
Adding to these specific oil market developments, traders are also watching the current ebb and flow in the general level of risk appetite currently being orchestrated by movements in the dollar and US Treasury yields. With that in mind the market awaits news and guidance from today’s FOMC meeting.
The attempted bounce seen this week has been led by speculation - which was later denied - that Beijing is preparing to ease Covid rules. However, most of the gains which also benefitted industrial metals held after China’s outgoing premier Li Keqiang said China will strive for a "better" economic outcome and promote stable, healthy and sustainable development, saying China’s economy is showing signs of stabilizing, as well as “rebounding momentum" thanks to stimulus.
Ahead of the agreed OPEC+ production cuts this month OPEC itself, according to a Bloomberg survey, raised its output by 30,000 barrels per day in October, almost hitting 30 million barrels per day for the first time since April 2020 when Saudi Arabia temporarily hiked production just before demand collapsed as the pandemic shut down the world. While the table below only shows part of the equation the announced 2 million production cut this month will be less as several OPEC and non-OPEC+ members are struggling to reach their baseline production target. Overall, the cut is likely to be around 1.2 million barrels per day with just a handful of producers cutting, four of them shown below.
Apart from today’s FOMC announcement, the market will also be watching EIA’s weekly storage report, not least after the American Petroleum Institute last night released their report showing a counter seasonal6.5 million barrel drop in US crude stocks. In addition, the market will also be watching changes in gasoline and distillate stocks, both currently at precariously low levels and for signs of a pickup in refinery demand as seasonal maintenance ends. The level of crude and product exports will also be watched after record crude exports in the previous week helped drive total exports of crude and fuel to a record 11.4 million barrels per day.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)