Oil prices fall despite OPEC+’s decision to halt production increases

Crude futures fell to their lowest level this year as concerns about weak global demand, including from top oil importer China, coincided with a possible OPEC+ production hike in October. November Brent fell $4.91/bbl on September 4 to settle at $73.75 per barrel (bbl), off a YTD low of $72.63/bbl, while WTI also set a YTD low, falling to $69.19/bbl.

“The fact that recent data shows there are no signs of accelerating import demand in China, Europe or North America indicates a situation where the oil market will not be as tight as expected a few months ago,” said StoneX analyst Fawad Razaqzada, as reported by Dow Jones.

Today, OPEC+ has arrived a deal to delay the reversal of production cuts that were planned to begin in October, unnamed OPEC+ sources told Bloomberg on Tuesday. The group now plans to ease production cuts starting in December.

Despite an intraday rally in oil prices following the EIA crude inventory data and OPEC+ news, crude oil prices quickly gave up gains, with WTI crude falling back to $69.30 a barrel and Brent falling to $72.70.

“We see OPEC+ in a unusually difficult situation as their determination to support oil prices is challenged by a continued loss of market share to non-OPEC producers over a long period of time,” Ritterbusch analysts said, according to Dow Jones.This implied loss of revenue when coupled with a lower price environment will increase concerns about budget requirements among key OPEC producers.”

Related: Permian producers struggle with negative gas prices

Meanwhile, commodity analysts at Standard Chartered revealed that oil markets have recently been dominated by trend-following strategies overlaid with some volatile market views on the US macroeconomic outlook and geopolitical developments. According to analysts, the latest slide was boosted by the strategies of trend-following Commodity Trading Algorithmic Advisors (CTAs). StanChart says this group of traders is even shorter oil than it was at the end of the previous two cycles, leaving some room for a short-covering rally. However, experts also warned that the CTA strategy is currently so negative on oil that any substantial rally is likely to be followed by CTA traders going short again.

The rebound in Libyan oil isn’t helping oil prices either, as reports have surfaced progress towards an understanding to resolve a dispute was done. A few days ago, Sadiq al-Kabir, the first

the governor of Libya’s central bank, whose dismissal sparked the current crisis, said a deal between the authorities in Tripoli and Benghazi was imminent and that he was expected to return to the bank’s helm soon. Currently, the standoff between the two warring factions has taken ~700,000 b/d of Libyan crude off the markets. StanChart is, however, more optimistic about the Libyan situation and says the reality of the current negotiations is significantly more nuanced than Al-Kabir suggested. StanChart points out that so far there is no real agreement on anything substantial, other than the desire to have an agreement and get oil revenues moving again in the two regional economies.

StanChart says oil market fundamentals for Q4-2024 have not changed significantly over the past six weeks. Analysts projected an inventory draw of 0.5 million barrels per day (mb/d) for the quarter, assuming OPEC+’s voluntary cut cuts take place as currently scheduled. Similarly, the US Energy Information Administration (EIA) model projected a drawdown of 0.5 million barrels/day, while the International Energy Agency (IEA) model projects a drawdown of 0.5-0.7 mb/day. While these projected draws are not large, they are a significant y/y improvement over Q4-2023 builds, with a relative improvement coming in at 1.4 mb/d in the StanChart model and 1.3 bmb/d in EIA.

Copper Pullback

Copper prices continued to decline from their highs Biggest everwith prices

down over the past six trading days to close below $9,000/t for the first time in two and a half weeks. As with oil markets, sentiment in copper markets remains weak, driven by weak data from China and a sizeable rise in LME inventories. While LME copper stocks have

have fallen in recent days, remain close to their highest level since September 2019.

In contrast, SHFE copper stocks continue their downtrend, posting an eighth w/w

falling to its lowest level since March 8.

However, some Wall Street remains bullish on copper. According to Jeffries, copper demand could come under pressure if the global economy slows. However, the brokerage remains bullish on the metal over the medium term due to rising global demand coupled with significant supply constraints.

“A US recession would be a clear negative. But the subsequent recovery in demand would almost certainly outpace the increase in mining supply, implying significantly higher prices in the years to come.” the investment bank said in an Aug. 26 note.

If the US economy has a soft landing and Chinese demand stabilizes, Jefferies predicted that we could soon see the next up cycle in copper, with copper prices averaging $4.40 per pound (~$9,700/t) ) in 2024 and at $4.83. /pound (~$10,645/t) in 2025.

By Alex Kimani for Oilprice.com

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