Petroleum Prices Sway On OPEC+ Expectations

As we move toward the close of a tumultuous year across a variety of market sectors, Commodities prices haven’t ceased moving. Amid an unclear outlook for the global economy as well as Oil (CL) output, petroleum prices so far this week have been pulled in opposing directions. Let’s take a closer look at the latest fluctuations in the fossil fuel sphere. 

Petroleum Price Whipsaw

Summer 2022 was characterised by a relative drop in Oil’s value as the global marketplace was buffeted by widespread apprehension regarding a potential recession. However, the decisions taken at OPEC+’s most recent summit in Vienna, held on October 5th, were designed to reverse this trajectory. Following the meeting, the first one held in-person in over two years, production by the petroleum-exporting cartel was cut by two million barrels per day.

In the two days following the announcement of the production cut, the price of Crude rose by over 5.8% per barrel, while that of international benchmark Brent Oil followed a similar path, jumping by just under 5%. OPEC+’s decision calculus was not met with welcome by the Biden administration, which considered the move as aiding the Russian Federation as it struggles to keep afloat economically amid Western embargoes and divestment.

Output Set to Spike?

However, many savvy market watchers on Monday may have thought that a reversal was in store. Yesterday, the Wall Street Journal reported that the member nations of the petroleum cartel OPEC were weighing a significant increase in Oil production - news that shook global fossil fuel markets. (Source:Financial Times)

According to the report, a boost in output of half a million barrels a day could be on the table when the expanded twenty-three country organisation OPEC+ meets this coming December 4th. OPEC+, which is comprised of the Organization of Petroleum Exporting Countries founding thirteen members as well as an additional ten allied countries, collectively holds 90% of known Crude reserves on Earth, making its decisions critically important for the world economy.

Yesterday, perhaps unsurprisingly considering the purported coming jump in global petroleum output, the price of Crude Oil dropped to as low as just over $75 per barrel. Similarly, Brent hit a price nadir of under $82.40 for the day. 

However, representatives of Saudi Arabia were swift in refuting the Wall Street Journal’s report, reiterating that no decisions regarding output will be taken before December. Accordingly, global petrol traders pushed the prices of Crude and Brent Oil back up from their trading day lows. By the end of the day, Oil had minimised losses to just one cent from last week’s closing price per barrel, while Brent ended Monday with a nearly 0.4% gain.

Where To From Here?

As of the time of writing Tuesday morning, yesterday’s midday trading trends have been reversed, with traders pushing Oil up by 0.8% and Brent (EB) by 0.9%. So far in 2022, their values have increased by 6% and 12.4% respectively, in part due to the continuing conflict in Ukraine and fears of supply shocks. However, it seems that the coast is still not clear for global demand for black gold. 

Previous hopes that a re-opening of the Chinese economy was in the cards may seem a little less realistic at the moment, as some major cities continue to ratchet up COVID-19 infection control measures, putting a damper on market activity. Furthermore, while the latest United States inflation figures have shown a slowdown in consumer price hikes, worries about the near-term trajectory of the world’s largest economy may still be lingering. (Source:Trading Economics)

All in all, it seems unclear how Oil markets will shift by the end of the year, both in terms of supply and demand. Traders and investors alike will have to wait and see.