{"id":68883,"date":"2023-10-05T02:41:01","date_gmt":"2023-10-05T06:41:01","guid":{"rendered":"https:\/\/ifintechworld.com\/investing\/oil-rally-shows-opec-plan-has-been-working-as-investors-await-next-saudi-move\/"},"modified":"2023-10-05T02:41:04","modified_gmt":"2023-10-05T06:41:04","slug":"oil-rally-shows-opec-plan-has-been-working-as-investors-await-next-saudi-move","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=68883","title":{"rendered":"Oil rally shows \u2018OPEC+ plan has been working\u2019 as investors await next Saudi move"},"content":{"rendered":"

Saudi Arabia\u2019s decision a month ago to extend its crude-production cut to the end of the year hasn\u2019t yet lifted oil prices past the psychologically important $100-a-barrel level, but it did contribute to the largest quarterly price percentage gain in over a year.<\/p>\n

\u201cThe OPEC+ plan has been working,\u201d said Jim Burkhard, vice president and head of research for oil markets, energy and mobility, at S&P Global Commodity Insights, in market analysis issued Tuesday. Production cuts by Saudi Arabia and Russia have had the \u201cintended effect of tightening the global oil balance and have convinced previously bearish speculators to turn bullish.\u201d<\/p>\n

\n

Saudi Arabia announced on Sept. 5 that it would extend its voluntary output cut through December. Separately, Russia\u2019s Deputy Prime Minister Alexander Novak said his country would extend its additional voluntary cut in oil supplies to world markets by 300,000 barrels a day, also to the end of the year. <\/p>\n

The front-month contract for U.S. benchmark West Texas Intermediate crude
\n CL.1,
\n +0.49%<\/bg-quote>
\n settled at $93.68 a barrel on the New York Mercantile Exchange on Sept. 27, the highest since Aug. 29, 2022. On Tuesday, the front-month November WTI contract
\n CLX23,
\n +0.49%<\/bg-quote>
\n settled at $89.23, up 41 cents, or 0.5%.<\/p>\n

Global benchmark Brent crude on ICE futures Europe saw its December contract
\n BRNZ23,
\n +0.56%<\/bg-quote><\/p>\n

BRN00,
\n +0.56%<\/bg-quote>
\n ended Tuesday at $90.92, up 21 cents, or 0.2%. Front-month prices settled at $96.55 on Sept. 27, the highest since Nov. 7. <\/p>\n

For the third quarter, WTI oil posted a rise of nearly 29%, while Brent was up by more than 27%, with both benchmarks scoring their highest quarterly percentage gains since the first quarter of 2022.<\/p>\n

Oil futures rose more than 13% from trough to peak after Saudi Arabia and Russia \u201ccaught markets off gauge with their early announcement of an extension to voluntary output cuts through year-end,\u201d said Tyler Richey, co-editor of Sevens Report Research. \u201cThat development sparked the bullish combination of speculative short-covering and physical traders chasing the rally.\u201d<\/p>\n

In late September, however, the oil market became \u201coverbought,\u201d with WTI futures \u201cpressed into some technical resistance\u201d and reaching some measured move targets on the harts in the mid-$90-a-barrel range,\u201d he said. <\/p>\n

Over the course of the last week, there has been a \u201chealthy bout of profit-taking,\u201d said Richey, as markets digest a \u201cshifting fundamental backdrop characterized by fixed-income market pricing in a \u2018higher for longer\u2019 [interest] rate outlook and a more likely soft landing economic scenario.\u201d <\/p>\n

Read:<\/strong> Why gasoline prices are set to fall even as oil marches toward $100 a barrel<\/p>\n

OPEC+ \u201ccosts\u201d and challenges<\/h2>\n

The recent jump in oil prices over $90 a barrel has \u201cnot come without costs\u201d for OPEC+, said Burkhard. The group of oil producers includes members of the Organization of the Petroleum Exporting Countries and their allies such as Russia. <\/p>\n

A year ago, Saudi Arabia was producing 11 million barrels a day, but it is now producing 9 million barrels a day, he said. However, since June, oil prices are up about $20 a barrel in terms of monthly average prices, he said. <\/p>\n

For OPEC+, their work is \u201cnot over,\u201d said Burkhard. \u201cOPEC+ leaders need to remain committed to supply restraint \u2014 and keep output near current levels over the next year \u2014 to keep oil inventories generally low and prices high.\u201d<\/p>\n

Burkhard said OPEC+ supply restraint is a \u201cnecessary condition, but not unilaterally sufficient,\u201d so there may be times when more cuts are needed if the goal is to support prices above $80.<\/p>\n

The challenges OPEC+ faces in terms of supporting the oil market is shaped by two variables: world oil demand growth and the change in oil production outside of OPEC+, he said. <\/p>\n

Conditions are \u201cmost suitable\u201d for OPEC+ when demand growth is stronger than supply growth outside of OPEC+, Burkhard said, with that situation clearly demonstrated in 2021.<\/p>\n

This year, however, the picture changed as production gains outside of OPEC+ exceeded demand growth, so OPEC+ had to cut production to prevent rising oil inventories and reverse a 12-month oil-price decline from June 2022 to June 2023, he explained. <\/p>\n

He said the global supply deficit will shrink each month from September to December so the highest oil prices for this year are likely in September or October.<\/p>\n

Committee meeting<\/h2>\n

On Wednesday, OPEC+ will hold a meeting of the Joint Ministerial Monitoring Committee and traders will look to that meeting for potential signs of the next move for major oil producers.<\/p>\n

The gathering is held every two months and though the committee doesn\u2019t have the power to make changes to production levels, it has the authority to call for a full OPEC+ meeting, if needed. The next regular OPEC+ meeting is scheduled for Nov. 26. <\/p>\n

\u201cA lot of the heavy lifting for setting the 2024 production levels was done at the June meeting, and any tweaking that is deemed necessary will likely take place at the November full ministerial meeting,\u201d said Helima Croft, head of global commodity strategy at RBC Capital Markets, in a note dated Monday. RBC doesn\u2019t anticipate \u201cany major shift in production policy\u201d at the meeting.<\/p>\n

She said that in conversations with Saudi Energy Minister Prince Abdulaziz bin Salman in Calgary two weeks ago, the energy minister reiterated that the \u201cjury is still out,\u201d citing Chinese demand, European manufacturing data, and global central bank action as key criteria that will be considered in Riyadh\u2019s review process.<\/p>\n

\u201cWhile we continue to contend that one should always be prepared for a Saudi surprise, we are not anticipating that the Kingdom will declare \u2018mission accomplished\u2019 at this juncture, especially given the continuing uncertainty about the broader macro outlook and central bank action,\u201d she wrote.<\/p>\n

Next move?<\/h2>\n

So far, some analysts would refer to actions by Saudi Arabia as a success.<\/p>\n

The Saudis have shown \u201cstrong leadership and discipline\u201d as the de facto leader of OPEC+ since COVID initially roiled global energy markets, Sevens Report\u2019s Richey told MarketWatch.<\/p>\n

With its voluntary cuts, Saudi Arabia is leaving around 1.5 million barrels a day or more in the ground right now, relative to their recent production capacity peak, he said. <\/p>\n

However, it is \u201cmuch better off financially\u201d selling 10 million barrels a day with futures near $90 a barrel, for example, than it would be selling 11.5 million barrels a day with prices at $60 a barrel, said Richey.<\/p>\n

Unless we see a meaningful move beyond $100 a barrel and steady demand expectations, the Saudis are \u201cnot likely to ramp up production meaningfully and risk a reversal in the currently strong oil market,\u201d he said. <\/p>\n<\/p><\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Saudi Arabia\u2019s decision a month ago to extend its crude-production cut to the end of the year hasn\u2019t yet lifted oil prices past the psychologically important $100-a-barrel level, but it did contribute to the largest quarterly price percentage gain in over a year. \u201cThe OPEC+ plan has been working,\u201d said Jim Burkhard, vice president and […]<\/p>\n","protected":false},"author":1,"featured_media":19540,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"video","meta":{"footnotes":""},"categories":[239],"tags":[83],"class_list":["post-68883","post","type-post","status-publish","format-video","has-post-thumbnail","hentry","category-investing","tag-featured","post_format-post-format-video"],"yoast_head":"\nOil rally shows \u2018OPEC+ plan has been working\u2019 as investors await next Saudi move | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Saudi Arabia\u2019s decision a month ago to extend its crude-production cut to the 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