Oil Dips As Ian Retreats And OPEC Prepares To Cut Output

But many analysts foresee oil exceeding $100 again by year-end: File Image/Pixabay

Oil prices dipped on Thursday, due partly to the prediction of oil production expected to return in the wake of Hurricane Ian and also because the Organization of the Petroleum Exporting Countries (OPEC) have begun discussions about an oil output cut at their upcoming meeting next week, according to sources.

One OPEC source told media a cut was "likely", while two other OPEC sources said key members had spoken about the topic.

Brent settled down 83 cents at $88.49 per barrel, while West Texas Intermediate settled 92 cents lower at $81.23 per barrel.

Trading was also affected by the aftermath of the U.S. Federal Reserve and other institutions around the world raising interest rates, which critics insist will ruin demand:  "Right now, the oil market is teetering between the Fed-induced demand destruction and tight oil supplies," said Ryan Dusek, a director in the Commodity Risk Advisory Group at Opportune.

Craig Erlam, senior markets analyst at OANDA, added, "Amid so much uncertainty, seesaw trade may be common over the next week, unless we get more clarity from OPEC+ sources on the likely size of any adjustment and what it means for previous missed quotas."

As for another much ballyhooed influence on trading, Erlam said that "Traders have almost given up on a nuclear deal [with Iran] being agreed and this announcement from the U.S. appears to be a make or break move" - a reference to Washington announcing new sanctions against companies that facilitated Iranian oil sales.

Some analysts characterized Wednesday's trading as "aimless" and noted that this is characteristic of the market in general of late: "It's very much a macro story these days because we're not getting real measurable changes in either supply or demand dynamics at the moment," said John Kilduff, founding partner at Again Capital.

Kilduff added, "It's really about what the overall market sentiment is in terms of what the central banks are going to be doing to curtail this inflation surge."

However, despite fears and concerns of virtually everything the future could possibly offer, the physical market remains tight: in Europe, premiums for diesel over crude extended a recent bout of strength, and France continues to grapple with outages at some of its biggest refineries; meanwhile in the U.S., premiums for physical barrels of jet fuel traded in New York and Houston are soaring against futures.

Market tightness was also kindled by the European Union announcing a new round of sanctions against Russia that would ban European companies from shipping the OPEC+ producer's oil to third countries above an internationally set price cap.

As such, Christyan Malek, global head of energy strategy at JP Morgan, on Thursday echoed the sentiment of many insiders when he told Bloomberg television that he expects oil prices to exceed $100 at the end of this year:

But he warned of near-term headwinds, primarily China's zero-tolerance Covid policy that continues to force entire cities into lockdown and cripple the economy.