Oil Prices Decline To $99.44 as OPEC+ Meet

Crude oil prices tracked lower as traders expect the oil market to stay stuffy after the Organization of the Petroleum Exporting Countries and allied producers’ meeting on output.

Prices of crude oil in the international market have dropped lower behind $100 per barrel litre amidst global uncertainties and recent U.S House Speaker Nancy Pelosi’s visit to Taiwan despite Beijing’s warning.

While it makes sense for the Organization of the Petroleum Exporting Countries and allied producers to further boost output, there seems to be no majority in favour of this, chiefly because of Russia’s stance, Commerzbank said in a Tuesday note, citing a Reuters report.

The production hike of 430,000 barrels per day that was originally intended for September has been brought forward to July and August. As a result, all production cuts agreed in May 2020 have been reversed, at least on paper, the German bank noted.

However, analysts said OPEC+ has been producing considerably less than planned, and a further gradual increase of production targets would make sense to narrow the gap.

This is also the only way for countries with spare capacities to continue scaling up production without violating the agreement, according to Commerzbank.

Recall the new OPEC secretary general has emphasized the key role Russia plays in the success of the OPEC+ agreement. Thus, a decision to further raise output is not likely without Russia’s approval.

Saudi Arabia’s latest price hikes for customers in Asia and Europe also indicate that the kingdom is still interested in cooperating with Russia, as the hikes would make Russian oil cheaper for Asian customers and make it more difficult for Europe to move away from Russian supplies, the bank said.

There is growing confidence that OPEC+ will resist calls to boost production, OANDA analyst Edward Moya said in a Wednesday note.

Risk appetite remained healthy as China’s immediate retaliation to US House Speaker Nancy Pelosi’s trip to Taiwan did not result in worries over a major disruption for supply chains, the analyst said.

On the supply side, energy traders are also expecting inventories to continue declining, according to Moya. The prevailing tightness in physical markets is capping downward price moves due to a global economic slowdown, Moya said.

Early Wednesday, Brent crude lost 1.1% to $99.44 per barrel and West Texas Intermediate fell 1.1% to $93.34/b ahead of the OPEC+ meeting on the day.

Producers are expected to keep output steady amid limited spare capacity and demand concerns due to the global economic slowdown.