OPEC+ yesterday agreed to deepen the current production cuts of 1.3 million bpd by some 900,000 bpd, taking the total to over 2 million bpd. This, however, left traders cold as earlier reports mentioned discussions of additional cuts of up to 2 million bpd. The cuts will be in effect over the first quarter of 2024.

“Once the dust settles these initiatives may be enough to sustain the price of Brent in the 80s but with the U.S. economy heading for a semi-hard soft landing and China still struggling, the focus on weakening demand will be stronger than on this attempt by OPEC+,” said Saxo Bank’s head of commodity strategy, Ole Hansen, as quoted by Reuters.

UBS’ Giovanni Staunovo noted that the additional cuts may remain on paper only: “It seems the OPEC+ production cuts are ‘voluntary’ cuts, not part of an OPEC+ agreement. Hence the concern is that a large fraction of it could be a pledge on paper and effectively less barrels being removed from the market.”

Goldman Sachs called the additional cuts “a temporary response to inventory builds and production growth, noting also the increase in production capacity. The bank’s analysts also noted the fact that the additional cuts are voluntary, meaning that any further output reductions would be even more challenging to agree on, as reported by Bloomberg.

Oil prices initially jumped after the OPEC+ announcement. Later in the day, however, they started sliding, pressured by the considerations expressed by analysts. Also, as Goldman analysts pointed out in their note, the additional cuts were expected—the element of surprise that pushed prices significantly higher when Saudi Arabia first announced its voluntary cuts in the summer was absent this time.

As we head into the first month of winter fuel card users can expect a drop in the region of 1.2 pence per litre.

Oil prices have remained fairly stable this week, extending some losses on expectations that OPEC+ might not deepen output cuts next year after the producer group postponed its policy meeting.

Oil prices have remained fairly stable this week, extending some losses on expectations that OPEC+ might not deepen output cuts next year after the producer group postponed its policy meeting.

Trading activity was muted because of the U.S. Thanksgiving public holiday.

In a surprise move on Wednesday, the Organisation of the Petroleum Exporting Countries and allies including Russia delayed a ministerial meeting at which they were expected to discuss oil output cuts to Nov. 30.

Producers were struggling to agree on output levels ahead of the meeting originally set for Nov. 26, OPEC+ sources said, suggesting that the disagreement was largely linked to African nations. OPEC+ members Angola and Nigeria are aiming for higher oil output, officials told Reuters on Thursday.

“We think Nigeria can be assuaged as the leadership values its longstanding OPEC membership and improving ties with Saudi Arabia,” said RBC Capital Markets analyst Helima Croft.

“However, it may be more difficult to bridge the gap with Angola, which has been a moodier member of the producer group since it joined in 2007.”

The downside move looked overdone and the market will likely rally somewhat next week once traders return from the Thanksgiving holiday, said Phil Flynn, an analyst at Price Futures Group in Chicago.

The questions over OPEC+ supply come as data showed that U.S. crude stocks jumped by 8.7 million barrels last week, much more than the 1.16 million build analysts had expected.

On the demand side, there was more bleak news. Though a survey showed the downturn in euro zone business activity eased in November, data suggested the bloc’s economy will contract again this quarter as consumers continue to rein in spending.

Fuel card users can expect prices to remain static as we head into the final week of November.

Oil prices tumbled more than 1.5% this week on a bigger-than-expected rise in U.S. crude inventories and record production in the world’s biggest producer, along with mounting worries about demand in Asia.

U.S. crude stocks rose by 3.6 million barrels last week to 421.9 million barrels, according to the U.S. Energy Information Administration (EIA), far exceeding analysts’ expectations in a Reuters poll for a 1.8 million-barrel rise.

The weekly government data, which was not published last week due to systems upgrade, also showed U.S. crude production was holding at a record 13.2 million barrels per day that it hit in October.

“U.S. supply activity is headwind for the market, and U.S. is a problem for OPEC+,” said John Kilduff, partner at Again Capital LLC in New York, adding he does not think Saudi Arabia can cut more output to boost prices.

Top oil exporters Saudi Arabia and Russia, part of OPEC+, the Organization of the Petroleum Exporting Countries and allies, said this month they would continue with their additional voluntary oil output cuts until year end.

U.S. gasoline stocks showed strong demand with a surprise draw of 1.5 million barrels last week. Diesel inventories fell more than expected at 1.4 million barrels.

The International Energy Agency on Tuesday joined OPEC in raising oil demand growth forecasts for this year, despite projections of slower economic growth in many major countries.

China’s oil refinery throughput eased in October from the previous month’s highs as industrial fuel demand weakened and refining margins narrowed. Still, its economic activity perked up in October as industrial output increased at a faster pace and retail sales growth beat expectations.

Japan’s economy contracted in July-September, snapping two straight quarters of expansion on soft consumption and exports.

U.S. retail sales fell in October for the first time in seven months.

European Union diplomats said Russian oil tankers are not targeted in the European Commission’s proposal for tightening implementation of a price cap on the country’s crude oil.

Earlier, the Financial Times reported that Denmark will be tasked with inspecting and potentially blocking Russian tankers sailing through its waters under new EU plans as a way of enforcing a $60 per barrel price cap on Moscow’s crude.

Fuel card users can expect a further fall in the region of 1 pence per litre as we head towards the end of November.

Oil prices dipped slightly this week even after Israel sent ground forces into the Gaza Strip, raising tensions in the Middle East, as investors remain cautions following news that both the US Federal Reserve and the Bank of England have keep interest rates at their current levels but haven’t ruled out further increases if needed.

The Bank of England kept its main interest rate unchanged on Thursday at the 15-year high of 5.25 per cent and indicated that borrowing costs will likely remain at these sorts of elevated levels for a while, especially if oil and gas prices increase sharply on the back of the conflict between Israel and Hamas.

 In economic projections accompanying the decision, the bank said inflation is set to fall to below 5 per cent in October as domestic energy bills fall. However, it cautioned that oil and gas prices may start to rise again in light of the Israel-Hamas war.

Officials had previously thought that inflation would return to the 2 per cent target by the second quarter of 2025. But they revised the forecast on Thursday to say that inflation would remain above 2 per cent until the final quarter of 2025. The bank in September ended a nearly two-year run of interest rate rises. The US Federal Reserve and the European Central Bank have also held interest rates over the past week.
    

The Bank of England, like other central banks, raised interest rates aggressively from near zero as it sought to counter price rises first stoked by supply chain issues during the coronavirus pandemic and then Russia’s invasion of Ukraine, which pushed up food and energy costs.

 Higher interest rates, which cool the economy by making it more expensive to borrow and bearing down on spending, have contributed to bringing down inflation worldwide.

The pain of higher interest rates is still to come for many homeowners in the UK Unlike in the United States, for example, most homeowners in the UK lock in mortgage rates for only a few years. Those whose deals expire soon — an estimated 2 million households over the coming year — know that they face much higher borrowing costs in light of the sharp rise in interest rates over the past couple of years.

 Though a predicted recession has not materialized over the past year, the economic backdrop is hardly ideal for the governing Conservative Party given that a general election must take place by January 2025.

 Treasury chief Jeremy Hunt said a budget statement he is due to deliver later this month will look to “boost economic growth by unlocking private investment”, and “delivering a more productive British state”.

Fuel card users can expect a fall in the region of 1.0 t0 1.5 pence per litre

Oil prices reversed some of this week gains in trading on Thursday after a large build in U.S. crude stockpiles outweighed tensions in the Middle East.

In the past 2 weeks, the price for Brent crude oil has closed as high as $96.55 per barrel and as low as $84.07, while yesterday it settled at $85.82.

Volatility in oil markets is nothing new, particularly in the context of the past few years, however these recent weeks have witnessed some of the biggest price swings of the year. As has been pointed out all year in our previous blogs at present the only certainty in oil prices is uncertainty!

The oil market had been on a bullish trajectory after Saudi Arabia and Russia’s announcement in late August to extend their production cuts until the end of the year. This news had propelled oil prices towards the $100 per barrel mark, a level not seen since September 2022. However, a sudden shift occurred between September 27th and October 5th, as Brent crude oil prices plummeted by nearly 13%, abruptly ending the upward momentum.
The reversal was triggered by concerns about suppressed economic growth, driven by widespread apprehension about the potential impacts of prolonged high-interest rates. These fears have affected various financial markets, including bonds and stocks, leading to risk aversion and a subsequent oil market sell-off by speculative investors.

Following last week’s decline, there has been no respite from volatility for crude oil prices. Renewed conflict between Israel and the Palestinian group Hamas have exacerbated the uncertainty in oil markets. As reported by Reuters, “Hamas launched the largest military assault on Israel in decades on Saturday, while Israel pounded the Gaza Strip on Tuesday with the fiercest air strikes in the 75-year history of its conflict with the Palestinians.”

Given the extent to which commodity markets were impacted by the outbreak of conflict in Europe following Russia’s invasion of Ukraine in 2022, a lot of focus has turned to the risks associated with a conflict in the Middle East and the possible impact on oil prices.

Despite the welcome fall in oil prices over the past two weeks the downside is expected to be limited.

The Organization of the Petroleum Exporting Countries said in September that the market is facing a deficit that could potentially cause the most significant petrol shortage in more than a decade.

The International Energy Agency (IEA) also warned earlier in the month that the supply cuts made by Russia and Saudi Arabia posed a substantial threat to the continued price volatility. In line with these, prices aren’t expected to come down significantly in the near future.

However, for fuel card users a fall in the region of 3 -4 pence per litre for next week will be very welcome news!

Oil prices are on course for its biggest weekly fall for more than a year after crashing below $84 a barrel on Wednesday.

Triggered by a week of turmoil on financial markets and weak demand data out of the US, Brent crude fell as low as $83.84, taking its losses for the week so far to more than $11 per barrel, or 12 per cent. Data on Wednesday also showed the U.S. services sector slowed while the euro zone economy probably shrank last quarter, according to a survey.

In comparison, oil was trading above $97 a barrel early last week, having risen by some 35 per cent since June and triggering warnings that it was heading back over $100.

The turnaround, including a $5 drop on Wednesday alone in what was the biggest daily decline for more than a year, even after a meeting of a ministerial panel of OPEC+, the Organization of the Petroleum Exporting Countries and allies led by Russia made no changes to the groups output policy.

Saudi Arabia said it would maintain a voluntary cut of 1 million barrels per day (bpd) until the end of 2023, while Russia would keep a 300,000 bpd voluntary export curb until the end of December.

No doubt this week’s fall will offer respite for motorists who have seen fuel prices soar in recent months.

It will also be welcomed at the Bank of England and on Downing Street after both Andrew Bailey and Rishi Sunak vowed to bring inflation back under control.

‘Higher oil prices had been on the factors behind renewed angst over inflation,’ said Neil Wilson, chief market analyst at Markets.

Having reached $97 last week, worries that inflation would prove persistent fuelled fears that interest rates would remain higher than previously expected and for some time.

That has driven up borrowing costs – triggering fears about the outlook for the global economy and in turn demand for oil.

For next week fuel card users can expect to see a fall in the region of 1.5 pence per litre depending on card type.

30% jump in prices beckoning Saudi Arabia to ramp up supply.

Following a nearly 30% jump in prices this quarter to their highest in a year, analysts are waiting to see whether top producer Saudi Arabia might look to ramp up supply.

A ministerial panel of the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, is due to meet on Oct. 4. “Next week’s OPEC meeting will be a key update for the market with increasing probability the voluntary supply cuts by Aramco are reduced,” said National Australia Bank analysts in a client note.

Improving macroeconomic data from China, the world’s largest oil importer, coupled with strong fuel demand as the country as it embarked on its week-long Golden Week holiday on Friday, limited price declines.

“(An) increase in international travel during the Golden Week holiday is boosting Chinese oil demand,” ANZ analysts said in a client note.

Domestic travel is also expected to boost demand, with data from flight app Umetrip showing the average number of daily flights booked is a fifth higher than for Golden Week in 2019, before COVID.

China’s factory activity likely steadied in September, a Reuters poll showed, adding to a run of indicators suggesting the world’s second-largest economy has begun to stabilise which could bolster demand further. Official data is due on Saturday.

The U.S. economy maintained a fairly solid pace of growth in the second quarter and activity appears to have accelerated this quarter, data showed on Thursday, pointing to possible healthy fuel demand.

A backdrop of tight supplies in the U.S. provided further price support, with storage at Cushing, Oklahoma, the delivery point for U.S. crude futures, already at their lowest since July 2022.

“U.S. oil production is set to slow as well due to falling rig counts. Lower supply and record global demand of 103mb/d could push the market into a deficit of more than 2mb/d in the last quarter.”

Fuel card users can expect a small increase of .18 pence per litre as we head into the first week of October.

Crude prices are still set to end this week lower

The ease is due to fears of higher interest rates in the developed world spurred a heavy dose of profit-taking.

The Federal Reserve warned that interest rates will remain higher for longer through 2024, as did the Bank of England and the European Central Bank.

However, a fuel export ban by Russia on Thursday added to expectations of tighter supply, after Moscow blocked fuel shipments to most countries beyond four ex-Soviet states with immediate effect causing global oil prices to spike and eroding weeks downward momentum.

Unfortunately, the prospect of tighter supplies kept oil prices trading relatively higher for the year. A combined 1.3 million barrels per day cut from Russia and Saudi Arabia is set to substantially limit oil supplies in the coming months and keep us in a high-price environment as we head into the final quarter of 2023.

Brent oil- the global benchmark- is expected to trend between $90 to $100 a barrel through the remainder of 2023. Inventory data released earlier this week also showed U.S. supplies remained tight, even with the end of the travel-heavy summer season.

Nevertheless, downward pressure does still remain as oil markets were hit particularly hard by hawkish signals from the Federal Reserve this week. While the central bank kept rates steady, it warned that borrowing costs could still increase further this year, and will fall by a smaller-than-expected margin in 2024.

The warning, coupled with similar signals from the BOE and ECB, ramped up concerns that rising interest rates will weigh on economic activity and oil demand in the coming months.

Strength in the dollar- which traded at six-month highs on the Fed’s signaling- also weighed on crude markets, given that it makes oil more expensive for international buyers.

Focus is now on a Bank of Japan meeting later in the day for more cues on monetary policy, especially as the bank signaled a potential end to its negative rate regime.

Fuel card users can have an increase of .26 pence per litre as we head into the final week of September.

Crude oil prices set for another week of increases

This week, prices were lifted by the growing imbalance between demand and supply, and by China’s latest industrial output report, which showed faster-than-expected growth in August.

The main reason for the price jump, however, remains the production cut coordinated by Saudi Arabia and Russia covered in previous blogs. The International Energy Agency in its latest monthly report warned that cuts would tip the oil market into a deeper imbalance in the fourth quarter.

At the same time, the IEA forecasted peak oil demand before 2030, which prompted an immediate reaction from OPEC. Consistent data-based forecasts show that peak oil and other fossil fuel demand will not happen before 2030, as the International Energy Agency claimed earlier this week, OPEC said on Thursday, dismissing the claims of the “beginning of the end of fossil fuels.”

Indeed, warnings about peak oil demand have been numerous in recent years, all based on EV penetration rates that have so far failed to materialize. Instead, global oil demand has continued to rise, hitting a record this year, per the IEA itself. And the oil trade is getting more popular, too.

“Betting on oil is becoming a favourite trade on Wall Street. No one is doubting the OPEC+ (oil-producing nations) decision at the end of last month will keep the oil market very tight in the fourth quarter,” OANDA analyst Edward Moya told Reuters.

“Heading into the fourth quarter, the market looks a lot tighter,” Ben Cahill, senior fellow at the Center for Strategic International Studies, told Bloomberg. “The supply cuts from OPEC+ are starting to bite and it looks like we’re heading for a pretty significant supply deficit — so that does mean it’s bullish for prices.”

As well as higher prices, the IEA has warned that OPEC+ production cuts have set the stage for volatility to surge due to the draining of global oil inventories and the building of spare capacity amongst OPEC members. Of course, none of this is good news in the battle to tame inflation and cool interest rates.

Unfortunately for fuel card users a significant increase in the region of 4 pence per litre as we head into next week.