Investors Sour On Modest OPEC Hike, Oil Resumes Downward Trajectory

Meanwhile, rising global output causes headaches for major energy firms: File Image/Pixabay

The "relief rally" of the previous session's oil trading proved to be fleeting, as gloomy investors reportedly relieved by the Organization of the Petroleum Exporting Countries (OPEC) agreeing to a modest output hike caved to bearish sentiment on Tuesday and worried about its impact on the global market.

As of 1706 GMT, Brent dipped 30 cents to $65.17 per barrel, and West Texas Intermediate was down 20 cents to $61.49.

Previous rumours warned that OPEC would hike output by as much as 548,000 barrels per day (bpd) over the next three months, but on Sunday the cartel decided on a 137,000 bpd hike as originally planned.

But even a modest increase was cause for worry on Tuesday, given that Saudi Arabia opted to keep the official selling price of its flagship crude to Asia unchanged (an increase had been expected), and the Energy Information Administration reported that U.S. oil production is expected to hit a record 13.5 million bpd this year.

Plus, JPMorgan on Tuesday reported that global oil inventories, including crude stored on water, have risen every week in September, for a monthly total of 123 million barrels.

Phil Flynn, senior market analyst at Price Futures Group Inc., said, "Right now the market is locked in a sideways pattern, waiting to see what happens with inventories," referring to upcoming U.S. oil stocks data.

For the record, a Wall Street Journal survey expected crude stocks to have risen by 700,000 barrels to 417.2 million barrels in the week ended Oct. 3, while gasoline inventories are expected to have fallen by 1 million barrels to 219.7 million barrels; distillate fuels, mostly diesel, are forecast to be down by 400,000 barrels at 123.2 million barrels over the same time period.

In noting that rising global oil output is expected to keep prices falling, Reuters on Tuesday pointed  out that the five biggest global oil majors (Chevron, ExxonMobil, Shell, TotalEnergies, and BP) are moving to cut costs, jobs and share buybacks.

The news agency cited data from RBC Capital Markets and BofA Global Research showing that most of the majors need oil prices above $80 per barrel to sustain current levels of dividends and share buybacks, and that TotalEnergies has embarked on a five year strategy to cut costs by $7.5 billion (BP and Chevron have already reduced buybacks).