Oil Incurs Steep Weekly Decline In Advance Of OPEC Meeting

The cartel may agree to lower output to better align prices with fundamentals: File Image/Pixabay

Although oil eked out minimal gains on Friday amid concerns about monetary policies tightening globally and more Covid lockdowns in China, West Texas Intermediate dropped
6.7 percent for the week on a wave of bearish sentiment and fear that dominated trading during the previous few sessions.

WTI for October delivery rose 26 cents to settle at $86.87 per barrel, while Brent for November settlement rose 66 cents to $93.02

Investors are keeping a close eye on events in China, where the latest lockdowns in the city of Chengdu have hit manufacturers such as Volvo; previous lockdowns caused Chinese factory activity to contract in August for the first time in three months.

Although oil prices have fluctuated wildly in the latter half of this year, overall the commodity has fallen by over 20 percent in the three months through August, wiping out the gains resulting from Russia's invasion of Ukraine; and this makes oil vulnerable to Saudi Arabia's earlier remark that the Organization of Petroleum Exporting Countries (OPEC) will cut supplies in order to better align prices with extremely tight fundamentals.

The cartel and its allies are due to meet Monday to plan output policy.

Also on Friday, Group of Seven finance ministers met to formally back a plan to introduce the much-discussed price cap for international purchases of Russian oil, in order to curb revenue to Moscow but keep crude flowing to avoid price spikes.

The G-7 stated that "We confirm our joint political intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally; the provision of such services would only be allowed if the oil and petroleum products are purchased at or below a price determined by the broad coalition of countries adhering to and implementing the price cap."

The ministers aim to implement the cap in line with the timing of European Union sanctions on Russian oil set to kick in on Dec. 5, but Richard Watts, the managing director at HR Maritime, echoed the sentiments of critics by saying, "The question is how does the G-7 police this?

"Quite extensive measures are going to have to be taken to ensure that companies don't' find ways around price limitations."

As for another major influence on oil prices of late (and said to be a major reason why prices on Friday rebounded from earlier severe losses), the U.S. State Department on Friday said that Iran's newest response to nuclear deal proposals was "not constructive," which suggested that talks could last even beyond the already extended timeline of September if not scrapped altogether.