Supply-side fundamentals drive Brent ahead of Sunday OPEC+ meeting

The front-month ICE Brent contract has gained by $0.78/bbl on the day, to $82.36/bbl at 09.00 GMT.

PHOTO: Crude oil pumping jacks. Getty Images

Upward pressure:

Market speculation is rife that OPEC+ will impose additional production cuts while extending its existing voluntary output cuts. A significant reduction in output, based on volume, can dramatically hit already tight oil supply in the global market and push Brent higher.

Meanwhile, the threat of dwindling global oil inventories is yet another catalyst that could boost Brent prices in the near term.

“Modest upward oil price pressures in the coming months reflect a slight decline in global oil inventories in the first half of 2024 as risks of supply disruptions remain high,” the Energy Information Administration (EIA) said in its monthly oil report.

Energy-focused hedge fund investor Eric Nuttall holds a similar view. “Even assuming recession in the US and Europe, no further cuts from OPEC+, the end of HRH's [Saudi oil minister Abdulaziz bin Salman Al Saud] generous lollipop cut in Q2, and non-OPEC supply growth of 0.9MM Bbl/d [900,000 b/d], we still see inventories falling, from already multi-year lows, despite the absorption of ~288MM Bbls [288 million bbls] from the SPR,” Nuttall wrote in a social media post.

Downward pressure

US commercial crude inventories jumped by a whopping 9.05 million bbls in the week ended 17 November, Trading Economics reported citing American Petroleum Institute (API) estimates. This could offset speculations about potential OPEC+ output cuts at the joint ministerial meeting on Sunday, capping Brent's price gains. 

EIA's official data on US crude oil stockpiles is scheduled to be released later today.

OPEC member UAE “is set to boost its production by 135kb/d [135,000 b/d] to 3.075mb/d [3.075 million b/d] in 2024,” ANZ senior commodity strategist Daniel Hynes said in a note.

Iran also plans to ramp up oil production to reach 3.6 million b/d by March next year, its state-owned media agency IRNA reported citing Iranian oil minister Javad Owji. Iran could theoretically supply more oil to the global market by increasing its output. However, lingering US sanctions could dent those prospects.

By Konica Bhatt

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