Crude values rebound on OPEC+ output cut prospects

Front-month ICE Brent has increased by $1.37/bbl on the day, to $95/bbl at 09.00 GMT. But is on track for a $4/bbl drop on the week.

PHOTO: OPEC+ members are set to meet on 5 September. OPEC

Upward pressure:

Brent values have gained some as some market participants weigh that OPEC+ could announce production cuts at its upcoming meeting on 5 September. Saudi officials have expressed that the Brent futures price is not aligned with market fundamentals.

Other participants argue that possibility of breakthrough in Iran nuclear deal could tempt OPEC+ to cut production. Some analysts have projected that if the deal is cleared then atleast 1-2 million b/d of Iranian crude could hit global market within a short span.

Yesterday, Russian Deputy Prime Minister Alexander Novak warned that his country will not supply oil to nations that support price cap on Russian oil exports, which has been pitched by US and its allies.  The statement came ahead of G7 nations' finance ministers meeting scheduled later today, which is set to outline the implementation of price cap on Russian oil.

G7 nations are also considering blocking the transportation of Russian oil and other measures, to curb Russia’s energy revenues. Meanwhile, some market participants doubt whether the price cap would work as Russia has alternative ways to export oil to Asian markets without using western ship insurers.

Downward pressure:

Renewed Covid-19 outbreaks in China and fresh lockdowns continue to threaten the country's demand recovery. Several cities in China, including Shenzhen, Chengdu and Dalian are tightening restrictions to curb rising Covid-19 cases.

Authorities in Chengdu have announced a lockdown yesterday along with a four-day citywide Covid-19 testing drive. It is unclear whether the authorities will lift lockdown on Sunday after the four-day testing is over. Other cities have adopted similar measures, Shenzhen and Dalian authorities have asked citizens to work from home and have closed all entertainment business in some districts.

Despite Saudi officials' warning that OPEC+ should cut production, a survey by Bloomberg analyst forecast that OPEC+ is unlikely to make any change to production quota for October when they meet next week.

“We expect the group to leave output targets unchanged as their own numbers show a tighter-than-expected market and they would probably also want some more clarity on Iranian supply before making any big changes to output policy," ING’s head of commodity research Warren Patterson said.

By Nithin Chandran

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