Confident economic recovery drives up demand for oil

Confident economic recovery drives up demand for oil

Oil price dynamics in October showed another sharp increase, with Brent prices breaking through $ 85 per barrel and West Texas Intermediate reversing $ 84 per barrel. This rally was supported by expectations of high demand and a shortage of supply.

However, in the last trading week of the month, prices posted their first weekly loss in two months, with fears of insufficient supply easing and expectations of reduced demand.

Additionally, traders have been cautious, while continuing to assess the underlying market factors. It remains to be seen whether this marks the end of the recent rally in the oil market, as there are still bullish factors on the horizon, which could offset the current decline in the coming weeks.

The main bearish factor was the Chinese authorities’ interventions in the coal market. This has led to a collapse of its prices of almost 50% from recent peaks, which has partially lowered oil prices. The stabilization of the coal market reduces the risk of an increase in demand for crude oil due to a shortage of gas and coal. The crisis in the real estate market in China has also had a negative impact on the commodity markets, threatening a decline in consumption.

The other bearish factor was the strong growth in US oil inventories. Official statistics from the Energy Information Administration (EIA) showed a 4.3 million barrels increase in crude inventories thanks to stable production and an increase in net imports of 0.7 million barrels per day.

This figure was significantly higher than analysts’ forecasts, which assumed an increase in oil inventories of 1.9 million barrels.

At the same time, gasoline and distillate inventories fell by 2 million barrels to their lowest level in nearly four years, despite American consumers facing rising prices. As a result, the overall supply of petroleum products, a proxy for fuel demand, has fallen from exactly 2 million barrels per day to 19.8 million barrels per day.

Pressure on crude oil prices has also increased following a statement by Iranian officials that negotiations on a nuclear deal with the United States could resume in late November.

On the bullish side, the world’s major economies, led by China, are continuing a confident recovery after a series of full or partial lockdowns, creating increased demand for oil.

Dr Namat Al-Soof

If successful, Iran can free oil and gas exports from sanctions and increase production up to 1 million barrels per day. However, Iranian history is still far from being concluded. First, the course of negotiations will depend on the political mood of the country, and this is unlikely to be easy, given the position of the current government.

Second, even if successful, the state of the country’s production facilities is unclear. Recovery may take months.

On the bullish side, the world’s major economies, led by China, are continuing a confident recovery after a series of full or partial lockdowns, creating increased demand for oil.

At the same time, the oil market received further statements from OPEC + countries in favor of maintaining the status quo at the upcoming meeting on November 4, as the heavyweight alliance of Saudi Arabia and Russia expressed support for the continuation of the cautious approach to the offer. .

In this regard, Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg in an interview last week: “OPEC + must remain cautious in its approach to oil production adjustments despite rising prices. .

He said: “We don’t take things for granted. We still have COVID-19, there are still blockages and the supply of jet fuel remains tight. So we are not out of the box yet and we are not out of the realm of COVID-19. ”

Algeria’s energy minister echoed this concern last week, citing high risks and uncertainties.

Indeed, the 56th meeting of the OPEC + Joint Technical Committee lowered expectations of a market deficit to 300,000 barrels per day in the fourth quarter, from initial expectations of 1.1 million barrels per day, according to reports. Bloomberg sources.

This result justifies the alliance’s continued cautious approach by adding more oil to the market.

This market dynamic is supported by the natural gas crisis in Europe and the anticipation of a shortage of energy resources, generated mainly by European countries, on the eve of the unusually cold winter of the 2021-2022 season.

For now, the key event of the month is the OPEC + meeting on November 4. Despite increasing pressure from major consumers to increase production, the status quo should now be largely maintained.

As a result, Brent is expected to trade in November in a range of $ 82 to $ 86 a barrel pending new drivers. WTI is expected to trade in a range of $ 81-85 per barrel. Fluctuations beyond these ranges are not excluded.

• Dr. Namat Al-Soof is an Iraqi oil expert with extensive upstream and market analysis experience. He has held senior analyst positions at OPEC, the IEF in Riyadh and the OPEC Fund for International Development. Currently, he is a consultant to several companies in the petroleum industry.

Disclaimer: The opinions expressed by the authors of this section are their own and do not necessarily reflect the views of Arab News


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