Americas News
Oil Prices Leap Upward On OPEC Rumours As Analysts Predict A Return to $100/bbl
The notion that the Organization of the Petroleum Exporting Countries (OPEC) may enact the largest reduction in output since the pandemic stoked fears of supply tightness on Monday, causing the biggest daily jump in prices since July.
West Texas Intermediate for November delivery rose $4.14 to settle at $83.63 per barrel and Brent for December settlement gained $3.72 to $88.86 per barrel.
OPEC won’t make a final decision about whether it will slash a rumoured 1 million barrels per day (bpd) in output until ministers convene in Vienna on Wednesday, but Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, noted the irony of the situation.
He said, “It’s surprising for the market to have OPEC talking about cuts of a million barrels a day with inventories really still quite tight and the fact that they’ve also been missing their own production targets, but that said we’ve had prices slump now from over $120 to $80, so I’m sure they’re looking at that as a challenge.”
Haworth was referring to the fact that some OPEC+ members are producing below their production quotas, potentially dulling the impact of a supply cut.
For his part, Dan Pickering, CIO of Pickering Energy Partners, said, “The OPEC ministers are not going to come to Austria for the first time in two years to do nothing, so there’s going to be a cut of some historic kind.”
However, Pickering said the reduction will more likely be on the order of 500,000 barrels, which is “going to be enough to support the market in the near term.”
Either way, there is a loose consensus within the analytical community that oil prices will soon return to the triple digits if existing tightness and other factors such as the fading possibility of an Iran nuclear deal are considered: “Those of a bullish disposition have endured a summer of pain, but a winter of hope and expectation is on the horizon,” said Stephen Brennock, a senior analyst at PVM Oil Associates, adding that “A further uptick in trading activity coupled with tightening near-term oil fundamentals could well push oil prices back to $100/bbl.”
This is in line with Goldman Sachs anticipating that Brent will reach triple digits over the next three months, before climbing to $105 over a six-month horizon; WTI is expected to jump to $95 by around year-end before hitting $100 over the next six months.
As for OPEC’s motivation moving forward, Amrita Sen, chief oil analyst at Energy Aspects Ltd., said, “OPEC+ are very focused on stronger U.S. interest rates and its impact on emerging-market demand, hence they want to pre-empt any possible surpluses” in the global market.
