Crude oil prices were on course to end the week with a loss, with the decline starting on Wednesday and extending into Friday, reversing a string of gains that lasted two weeks.
At the time of writing, Brent crude was trading at $66.88 per barrel, with West Texas Intermediate at $63.34 per barrel, as oil traders anticipated the global oil supply balance to swing into a glut as OPEC+ adds more barrels to production.
Reuters reported on Wednesday that OPEC+ was considering another monthly output boost to be discussed at the group’s meeting this weekend. That report, citing unnamed sources in the know, started the latest oil price drop, even though the Reuters sources also said OPEC+ may decide to keep production flat on this month in October and that no final decision had been made.
The price drop, however, was inevitable in a context of repeated warnings about a looming oil glut. Even if OPEC+ decides to keep production flat, prices may fall further because of that perception of excessive supply and weak demand.
ING commodity analysts expect just that: OPEC+ keeping production unchanged. I a note earlier this week, they wrote that “This follows OPEC+ unwinding its 2.2m b/d of additional voluntary supply cuts over the last 6 months. The scale of the surplus through next year means it’s unlikely the group will bring additional supply onto the market. The bigger risk is OPEC+ deciding to reinstate supply cuts, given concerns about a surplus.”
Saxo Bank’s Ole Hansen noted that OPEC+ has so far this year approved production increases totaling 2.5 million barrels daily, including the UAE’s production quota increase, but that supply disruption risk remained, essentially putting a floor under prices. Hansen sees oil range-bound for the foreseeable future as a price rally would sap demand from China, while supply from OPEC+ still retains some restrictions, especially supply from Iraq and Kazakhstan, which are being made to compensate for producing above their respective quotas for months.
By Irina Slav for Oilprice.com
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