The Business Times

Oil climbs ahead of Opec+ meeting on Sep 5

Published Sat, Sep 3, 2022 · 05:47 AM

OIL prices rose on Friday (Sep 2) on expectations that Opec+ will discuss output cuts at a meeting on Sep 5, though concern over China’s Covid-19 curbs and weakness in the global economy loomed over the market.

Brent crude futures rose 66 US cents to settle at US$93.02 a barrel, while US West Texas Intermediate (WTI) crude futures rose 26 US cents to settle at US$86.87 a barrel.

Both benchmarks slid 3 per cent to 2-week lows in the previous session. Brent posted a weekly drop of 7.9 per cent, and WTI of 6.7 per cent.

A weekly chart shows that US crude futures surpassed last week’s high and have since retreated, and closed below last week’s closing level. That is a bearish signal, according to Eli Tesfaye, senior market strategist at RJO Futures in Chicago.

“When you take out the week’s high and week’s low and then close lower, that’s a reversal down - it’s a signal that there’s weakness, and that’s telling you it’s a weak market,” he said.

The Organization of the Petroleum Exporting Countries and allies led by Russia - a group known as Opec+ - are due to meet on Sep 5 against a backdrop of expected demand declines, though top producer Saudi Arabia says supply remains tight.

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Opec+ is likely to keep oil output quotas unchanged for October at Monday’s meeting, 3 Opec+ sources said, although some sources would not rule out a production cut to bolster prices that have slid from sky-high levels hit earlier this year.

Opec+ this week revised market balances for this year and now sees demand lagging supply by 400,000 barrels per day (bpd), against 900,000 bpd forecast previously. The producer group expects a market deficit of 300,000 bpd in its base case for 2023.

Meanwhile, Iran said it had sent a “constructive” response to US proposals aimed at reviving Teheran’s 2015 nuclear deal with world powers. The United States gave a less positive assessment.

The news made some investors sceptical that a deal was imminent, which supported oil prices, said Phil Flynn, an analyst at Price Futures group in Chicago.

“There’s less confidence that we’re going to get a deal with Iran and that’s leading to some short-covering,” Flynn said.

G7 (Group of Seven) finance ministers agreed on Friday to impose a price cap on Russian oil, but provided few new details to the plan aimed at curbing revenue for Moscow’s war in Ukraine while keeping crude flowing to avoid price spikes.

In the United States, employers hired more workers than expected in August, but moderate wage growth and a rise in the unemployment rate to 3.7 per cent could ease pressure on the Federal Reserve to deliver a third 75 basis-point interest rate hike this month.

US energy firms this week cut the number of oil and natural gas rigs operating for the fourth time in 5 weeks. The US oil and gas rig count, an early indicator of future output, fell by 5 to 760 in the week to Sep 2, Baker Hughes Co said on Friday.

Russia’s Gazprom said on Friday that natural gas supplies via the Nord Stream 1 pipeline would remain shut off after the main gas turbine at Portovaya compressor station near St Petersburg was found to have an oil leak.

Investors remain worried about the impact of the latest Covid-19 restrictions in China. The city of Chengdu on Thursday ordered a lockdown that has hit manufacturers such as Volvo.

Data showed Chinese factory activity in August contracted for the first time in 3 months in the face of weakening demand, while power shortages and Covid-19 outbreaks also disrupted output.

Money managers cut their net long US crude futures and options positions by 10,607 contracts to 168,431 in the week to Aug 30, the US Commodity Futures Trading Commission said on Friday. REUTERS

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