By Barani Krishnan
Investing.com — There are still two weeks until the OPEC+ meeting, but the Saudis and Russians have decided not to sit back and let the market meltdown continue.
In an urgent response to a Wall Street Journal report on Monday, Saudi Energy Minister Abdulaziz bin Salman denied that the alliance of oil producers from 23 countries under his responsibility was working on a 500,000 barrel production boost. per day to be announced at the December 4 OPEC+ meeting. .
If the WSJ report had been true, it would have been a pivot towards the 2 million barrels per day cut that OPEC+ had announced for November. It would have been a small rise in barrels, but huge in goodwill, doing wonders for Saudi-US relations but, unfortunately, further hammering already plummeting crude prices.
Trading in New York, or WTI, the benchmark for U.S. crude, and London, the global gauge for oil, hit their lowest level since the start of the year in early trading on Monday, partly on the basis of the WSJ story.
But the report was not true, Saudi Energy Minister Abdulaziz said in a statement carried by the official SPA news agency.
“It is well known that OPEC+ does not discuss any decision before the meeting,” Abdulaziz said, referring to the Dec. 4 meeting.
He added: “The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if it is necessary to take additional measures by reducing production to balance supply and request, we are always ready to intervene”.
And fittingly, Russian Deputy Prime Minister Alexander Novak, Abdulaziz’s closest ally outside the Gulf in OPEC+, came with his own responses to the upcoming Dec. 5 decision by Western nations on a possible ban on imports and a cap on the price of Russian oil.
Novak reiterated Russia’s position not to sell its oil to nations that would participate in the price cap, a plan devised by the West to limit the funding Moscow could put into its war against Ukraine. The Russian Deputy Prime Minister also said something else that helped crude prices turn positive for the day: in the event of an oil price cap, Russia could also cut oil production.
“The lower supply will be the result of Russian oil price capping,” Novak added.
WTI, which hit a session low of $75.30 on Monday, marking a low since January, recouped most of its losses by midday, responding to remarks from Abdulaziz and Novak. Benchmark US crude stood at $79.73 a barrel, down 35 cents, 0.4%.
Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said oversold conditions could pull WTI back towards the 100-week simple moving average of $81.30. “But it needs to reach and close above $80. Otherwise, there is always the danger if it heads towards lows of $72.50 and $71.
The global benchmark for Brent crude fell to $82.36 earlier, its lowest since February, before recovering to settle at $87.45, down 17 cents, or 0.2%, on the daytime.
“It is interesting to see the coordinated response we received from the Saudis and Russians in denying the WSJ report and putting a floor under the oil sale,” said John Kilduff, founding partner of the New York energy hedge fund. AgainCapital. “There are still two weeks until the OPEC+ meeting and they have decided that there is too much risk on the price front if they remain silent until then.”
Crude prices also briefly entered a “contango” mode on Friday – a market structure that defines weakness – for the first time since 2021. In this dynamic, the first month oil contract in the futures market is trading with a discount compared to the neighboring month. . While the difference itself may be small, it forces buyers wishing to hold an oil position at contract expiration to pay more to switch to a new first-month contract.
With so much crude negativity now, all eyes are on what the OPEC+ alliance of oil producers will do when they meet on December 4.
OPEC+ – the alliance that brings together OPEC, or the Organization of the Petroleum Exporting Countries led by Saudi Arabia, with 10 other oil producers led by Russia – agreed at its previous meeting to cut production of 2 million barrels per day to boost Brent and US crude prices which had fallen sharply from March highs.
Right after this decision by OPEC+, Brent rose from a low of around $82 a barrel to close to $100 in a few days (it had hit close to $140 earlier in March). WTI went from $76 to $96 (WTI was just over $130 in March). Both benchmarks have lost all of these gains over the past two weeks, raising the question of whether OPEC+ will opt for even more cuts to support the market again.
Abdulaziz’s remarks on Monday signaled the likelihood of further cuts, particularly when he said the alliance would be “ready to step in” if it is necessary to “take further action by cutting production to balance the Offer and demand”.
The OPEC+ 2 million barrel cut itself was not well received by the United States.
Relations between Saudi Arabia and the United States have hit a low point over disagreements over oil production this year, although the WSJ reported on Monday that US officials are considering the December 4 OPEC+ meeting. with some hope.
Talk of a production boost emerged after the Biden administration told a Federal Court judge that Saudi Crown Prince Mohammed bin Salman should be granted sovereign immunity from a US federal lawsuit linked to the brutal killing of the Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Mohammed, cementing his position as the de facto ruler of the kingdom after the Biden administration tried for months to isolate him.
The WSJ acknowledged in its report that it would be an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November itself following a surge. Covid headlines from China.
Rising coronavirus cases in China have prompted new lockdowns in some of the country’s biggest cities, raising concerns about slowing demand for crude in the world’s biggest oil importer. The country is currently grappling with its worst COVID outbreak since April, which saw several cities placed under lockdown. A report released earlier this month indicated that several Chinese refiners had requested Saudi Arabia (TADAWUL:) to supply lower amounts of oil in December, which could indicate a slowdown in oil shipments to the country. China has also increased its refined fuel export quotas, potentially indicating excess crude inventories due to lower demand.
Even so, some OPEC+ delegates have apparently told the WSJ that a production surge could take place in December in response to expectations that oil consumption would generally rise in winter. Oil demand is expected to increase by 1.69 million barrels per day to 101.3 million barrels per day by the first quarter of next year, compared to the average level for 2022.
Saudi Energy Minister Abdulaziz has also said in the past that the kingdom will provide oil to “all who need it”.
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