Oil prices gained on Tuesday after Saudi Arabia denied a media report that it was discussing a crude output increase with the Opec+ group of oil-producing countries, which caused the market to tumble a day earlier.
Brent, the benchmark for two thirds of the world’s oil, was trading 1.5 per cent higher at $88.74 a barrel at 3.47pm Qatar time. West Texas Intermediate, the gauge that tracks US crude, was up 1.4 per cent at $81.17.
Prices fell about $5 late Monday after the Wall Street Journal reported that top crude exporter Saudi Arabia was considering raising output targets by 500,000 barrels per day at the Opec+ meeting on December 4.
“There is simply too much drama, and false information out there and traders are confused about it,” said Naeem Aslam, chief market analyst at Avatrade. The Journal’s report “made no sense at all when it was released”, Aslam said.
Crude futures rebounded to about $88 a barrel after Saudi Energy Minister Prince Abdulaziz bin Salman said the current output cut of 2 million bpd would continue until the end of 2023.
“It is well known and no secret that Opec+ does not discuss any decisions ahead of its meetings,” Prince Abdulaziz was quoted as saying by the Saudi Press Agency (SPA).
“If there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene.”
“First, the US will stop selling its strategic petroleum reserves. And second, the EU sanctions against Russian oil will become effective in December,” she said. “Both, should support another leg higher in oil.”
Despite the large Opec+ cut last month, prices have slumped in recent weeks on concerns of a global economic slowdown and China’s restrictive Covid-19 policy, which has prevented fuel demand from returning to pre-pandemic levels in the world’s second-largest economy and biggest importer of crude.
“Oil is going to have trouble finding a floor, with a deteriorating crude demand outlook for both [the] world’s largest economies,” said Edward Moya, senior market analyst at Oanda.
“Until we get some positive news from either China or the US, the dollar will continue to rebound and crude’s path appears to be headed lower.”
China has had several Covid-19 outbreaks, from Zhengzhou in central Henan province to Chongqing in the south-west. It reported 26,824 new local cases for Sunday, close to the peak reached in April.
Chinese Vice Premier Sun Chunlan called for “immediate, resolute and decisive measures” to contain the current outbreak in Chongqing, a key industrial centre, the official Xinhua news agency reported.
“The warnings from key Chinese officials are the primary driver behind oil’s current slump,” said Mr Moya.
Meanwhile, physical crude markets are already showing the effects of the looming EU embargo on Russian crude exports, he said.
The Group of Seven advanced economies is set to place a price cap on Russian crude exports from December 5. Details of the level of the price cap are expected to be released later this week.
“Europe has been quickly erasing its dependence with Russian crude and that will continue as we approach the oil price cap deadline,” said Moya.
Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down.
Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s.
Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production.
Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.
Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members.