By Barani Krishnan
Investing.com – There are still two weeks to go until the OPEC+ meeting, but the Saudis and Russians have decided not to sit back and let the market slump continue.
In an urgent response to a Wall Street Journal report on Monday, Saudi Energy Minister Abdulaziz bin Salman denied that the 23-nation oil-producing alliance he heads is working to increase production by 500,000 barrels a day, with a view to making the move at the OPEC+ meeting on March 4 to be announced in December .
If the WSJ report had been true, it would have been a linchpin for the 2 million barrels per day cut OPEC+ announced for November. It would have been a small increase in barrels, but a huge benevolence that would have worked wonders for Saudi Arabia-US relations, but unfortunately would have pushed already free-falling crude prices further higher.
Both the New York-traded , or WTI, the benchmark for U.S. crude, and the London , the global benchmark for oil, hit their year-to-date lows in early trading Monday, based in part on WSJ history.
But the report is untrue, Saudi Energy Minister Abdulaziz said in a statement to state news agency SPA.
“It is known that OPEC+ does not discuss any decisions before the meeting,” Abdulaziz said in reference to the Dec. 4 meeting.
He added: “OPEC+’s current cut of 2 million barrels per day lasts until the end of 2023 and if further action is needed by reducing production to balance supply and demand, we stand ready to step in. “
And right on cue, Russian Deputy Prime Minister Alexander Novak, Abdulaziz’s closest non-Gulf ally in OPEC+, came up with his own responses to the upcoming December 5 decision by Western nations on a prospective import ban and price cap for Russian oil.
Novak reiterated Russia’s stance not to sell its oil to nations that would participate in the price cap, a plan by the West to limit the resources Moscow could pour into its war against Ukraine. Russia’s Deputy Prime Minister said something else that helped crude oil prices turn positive for the day: In the event of an oil price cap, Russia could also cut oil production.
“Lower supply will be the result of a price cap on Russian oil,” Novak added.
WTI, which hit a session low of $75.30 on Monday, a low since January, recouped most of its losses by midday, responding to remarks from Abdulaziz and Novak. The US crude oil benchmark settled at $79.73 a barrel, down 35 cents, or 0.4%.
Sunil Kumar Dixit, chief technical strategist at SKCharting.com, said oversold conditions could push WTI back towards the 100-week simple moving average of $81.30. “But it needs to hit the $80 mark and close. Otherwise, there is always a risk as it moves towards $72.50 and $71 lows.”
Global benchmark Brent crude earlier fell to $82.36, its lowest level since February, before rebounding to settle at $87.45, down 17 cents, or 0.2%, on the day.
“What’s interesting is the coordinated response we’ve had from the Saudis and the Russians in denying the WSJ report and undercutting the oil sell-off,” said John Kilduff, founding partner of New York energy hedge fund Again Capital. “There are still two weeks until the OPEC+ meeting and they have decided that there is too much at stake on the price front if they don’t say anything by then.”
Crude oil prices also briefly entered “contango” mode on Friday for the first time since 2021 — a market structure that defines weakness. Under this momentum, the front month oil contract is trading in the futures market at a discount to the nearby month. While the difference itself may be small, it forces buyers who want to hold a position in oil at the time the contract expires to pay more to switch to a new front-month contract.
With such negativity in Crude Oil, all eyes are now on what the OPEC+ alliance of oil producers will do when they meet on December 4th.
OPEC+ – the alliance that brings together OPEC, or the 13-member Saudi-led Organization of Petroleum Exporting Countries, with 10 other Russian-controlled oil producers – agreed at their previous meeting to increase production by 2 million barrels a day cut to boost Brent and US crude prices, which fell sharply from March highs.
Immediately following this OPEC+ decision, Brent surged from a low of around $82 a barrel to nearly $100 in a matter of days (it had previously hit nearly $140 in March). WTI rose from $76 to $96 (WTI was just over $130 in March). Both benchmarks have given up all of those gains over the past two weeks, raising the question of whether OPEC+ will make any more cuts to prop up the market again.
Abdulaziz’s comments on Monday signaled the likelihood of further cuts, particularly when he said the alliance would “stand ready to step in” if it was necessary to “take further action by reducing production to balance supply and demand.” .
The 2 million barrel cut in OPEC+ itself did not go down well with the United States.
Saudi Arabia-US relations have hit rock bottom this year over oil production disagreements, although the WSJ reported on Monday that US officials were looking to the OPEC+ meeting on Dec. 4 with some hope.
Talk of an increase in production came after the Biden administration told a federal judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a US federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision was tantamount to a concession to Muhammad and bolstered his standing as the kingdom’s de facto ruler after months of attempts by the Biden administration to isolate him.
The WSJ conceded in its report that it would be an unusual time for OPEC+ to consider increasing production as global oil prices have fallen more than 10% since the first week of November, prompting a spate of Covid headlines is due to China.
Rising coronavirus cases in China prompted fresh lockdown measures in some of the country’s biggest cities and fueled concerns about slowing crude demand at the world’s largest oil importer. The country is currently grappling with the worst COVID outbreak since April, which has seen several cities locked down. A report earlier this month said several Chinese refiners have asked Saudi Arabia (TADAWUL:) to ship lower oil volumes in December, which could indicate a slowdown in oil supplies to the country. China has also increased its export quotas for refined fuels, possibly indicating a surplus of crude oil inventories due to slowing demand.
Nonetheless, some OPEC+ delegates apparently told the WSJ that an increase in production could take place in December, in response to expectations that winter oil consumption would typically pick up. Oil demand is expected to rise by 1.69 million barrels per day to 101.3 million barrels per day by the first quarter of next year, compared to the average level in 2022.
Saudi Energy Minister Abdulaziz has also said in the past that the kingdom would supply oil to “everyone who needs it”.