No one can explain the oil selloff, demand is not the issue: Eric Nuttall
Oil headed for a fourth weekly loss after sinking into a bear market, a development that poses a headache for OPEC+ leaders set to review production targets later this month.
West Texas Intermediate is on course for a weekly drop of about five per cent, even as the benchmark edged higher on Friday. It is down more than 20 per cent from a high in September.
The latest slump has been driven by a myriad of factors. Prices for real-world barrels have been steadily softening over the last few weeks, in part as supply exceeds expectations. Shipments from Guyana and the North Sea are set to rise next month, while U.S. exports have been surging.
Those higher volumes muddy the outlook ahead of a meeting of the Organization of Petroleum Exporting Countries and its allies at the end of next week. Saudi Arabia and Russia — the group's biggest producers — have pledged to keep additional output curbs in place until the end of the year, though Russia's crude exports have risen in recent weeks.
Recent price weakness has been compounded by technical factors. Key market gauges are trading in a bearish contango structure for the first time in months, while some moving averages have also been breached in recent days, exacerbating the selling pressure.
“All eyes are now back at OPEC+ after the recent fall in oil prices, along with weakening crude curve structures and weakening economic statistics,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.
Inventory data from the U.S. earlier in the week pointed to a sharp increase in stockpiles recently, particularly at the key storage hub of Cushing, Oklahoma. Those builds come as refineries undergo seasonal maintenance, reducing their demand for crude. Overseas shipments have also been leaping as U.S. production rises, adding supply to the market.
The International Energy Agency said earlier this week that production growth means the global market won't be as tight as had been expected this quarter.
That's compounding a softness in prices, despite risks associated with the Israel-Hamas war. While many traders bought bullish options when that conflict broke out, they're now paying bigger premiums for bearish ones to protect against the risk of further declines.
- WTI for December delivery rose one per cent to US$73.63 a barrel at 10:12 a.m. in London.
- More-active January futures advanced 1.1 per cent to US$73.87 a barrel
- Brent for January settlement added one per cent to US$78.21 a barrel.
Still, some analysts believe the current price weakness won't last for long, with OPEC set to defend prices in the coming months.
“We believe that OPEC will ensure that Brent oil prices end up in a US$80-to-US$100 range in 2024 by ensuring a moderate deficit and leveraging its pricing power,” Goldman Sachs Group Inc. analysts including Daan Struyven said in a note. The latest selloff was driven by non-OPEC supply topping expectations, they said.
The demand outlook has also been cloudy. Figures from China, the world's largest importer of crude, show that refiners cut daily processing rates in October as apparent oil demand fell from a month earlier. Meanwhile, U.S. unemployment benefits rose to the highest level in almost two years, signaling a slowdown in the world's biggest crude consumer.