The Organization of the Petroleum Exporting Countries’ (OPEC) recent bullishness about demand resonated with oil traders on Monday after the cartel released its latest monthly report, enough for two key benchmarks to rise by over 1 percent.
Brent settled up $1.09 at $82.52 per barrel while West Texas Intermediate settled up $1.09 at $78.26 per barrel.
OPEC in its report reiterated its earlier stance that fundamentals remain strong and speculators are to blame for price drops; it also slightly increased its 2023 global oil demand forecast and maintained a strong outlook for the new year.
Fawad Razaqzada, an analyst at City Index, theorized that further price declines may be limited: "Given that oil prices have weakened in the last few weeks, Saudi Arabia and Russia will likely continue with their voluntary supply cuts into next year; this should therefore limit the downside potential.”
But given the schizophrenic behaviour of oil traders, RBC Capital Markets analysts including Michael Tran did not share Razaqzada’s optimism.
While writing in a note that the futures market appeared oversold, they cautioned that a price rally may be short lived considering factors such as high interest rates are causing persistent demand fears.
Also, concerns about tight supplies maybe unfounded: Bloomberg noted that “Supplies from Middle East — the source of about a third of the world’s crude — remain unaffected by the conflict between Israel and Hamas, while shipments from Russia and the U.S. are increasing.”
Contributing to this seeming abundance was OPEC, whose crude production rose in October by 80,000 barrels per day (bpd) compared to September; total production from all 13 OPEC members averaged 27.90 million bpd in October, up by 80,000 bpd month-on-month.
However, OPEC stated that, “Crude production in October remained well-below the agreed level related to production adjustments under the Declaration of Cooperation (DoC): for example, Nigeria has seen some production increase, but remained well below its required production level.”
Finally on Monday, Goldman Sachs possibly influenced trading for upcoming sessions by telling clients it sees energy benefitting from hedging against war-risk premiums in the coming 12 months; it also expects the U.S. Federal Reserve to begin reducing interest rates in the fourth quarter of next year.