Crude oil prices dropped at Asia’s trading session on Thursday morning, after rising in the two previous sessions. The slide was attributed to growing concerns on oversupplies after it re-emerged that some oil installations around the Gulf of Mexico are to resume production following Hurricane Sally’s passage.
Also, OPEC is scheduled to hold its meeting today.
What we know: At the time this report was drafted, Brent crude prices dropped 1.30% to trade at $41.76 a barrel, after surging as high as 4.2% on Wednesday.
U.S. West Texas Intermediate fell by 1.57%, to trade at 39.53/barrel, after gaining 4.9% yesterday.
The black liquid derivative price plummeted on the macro coming from a bigger-than-expected rise in U.S. distillate inventories, which include diesel and heating oil, that raised concerns about fuel demand in the world’s largest consumer of oil.
Stephen Innes, Chief Global Market Strategist at AxiCorp, in a note to Nairametrics, spoke on why all eyes now seem to be on OPEC’s all-important meeting, scheduled to hold today.
“Still, it will be crucial for the OPEC JMMC to manage the perception that compliance is an issue for the group and to send a strong signal that OPEC+ remains committed to a stricter level of laggard compensation and maintaining cuts for the full duration of the OPEC+ agreement.
“And buttressing a stouter compliance view, the new problem producer UAE has assured the group they will compensate for pumping too much oil for the past few months, which has further boosted sentiment.
“As far as the post JMMC impact, beyond reaffirming compliance and perhaps some resolution on catching up quota volumes, we should expect limited new news and certainly nothing to significantly bump the crude market out of its current funk and push brent back to $45 per barrel.”
However, the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meets today, though it is not widely expected to recommend any changes.
Crude oil prices post gains, OPEC+ warns overproducers
Both crude oil benchmarks remained above the $40-mark.
Crude oil prices rallied higher at most parts of Asia’s trading session on Friday. The recent price surge in crude oil prices is coming as OPEC+ concluded its meeting yesterday, with a stern warning to its overproducing members and energy speculators.
What we know: At the time this report was written Brent crude prices gained 0.81% to $43.65 and WTI futures were up 0.76% to $41.29. Both crude oil benchmarks remained above the $40-mark.
Why Oil prices are rallying up? OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting held on Thursday, revealed that OPEC+ members agreed to obey the 7.7 million barrels per day production cuts agreed on in the month of July.
In addition, Saudi’s Energy Minister, Prince Abdulaziz bin Salman, sent an unusually stern warning to both overproducing members (the United Arab Emirates in particular) and energy price speculators.
“Using tactics to over-produce and hide non-compliance have been tried many times in the past, and always end in failure,” Prince Abdulaziz said at the opening session of the OPEC+ committee that monitors the output cuts.
In an explanatory note, Stephen Innes, Chief Global Market Strategist at AxiCorp gave the following insights on Saudi’s battle against overproducing members:
Oil prices recovered after Saudi Arabia threw down the compliance gauntlet, publicly raking laggards over the coal and firing lightning bolts at short-sellers.
In a week where oil price fragilities were exposed after traders digested a combination of gloomy agency short-term forecasts, it was Saudi Arabia throwing down the gauntlet, publicly raking laggards over the coal while emphatically calling for OPEC+ members to meet their quotas that gushed oil prices to their most massive three -day advance since May.
During the OPEC+ Joint Ministerial Monitoring Committee (JMMC) meeting, Saudi Arabia’s Prince Abdulaziz bin Salman read the riot act to cartel members who cheated on production quotas.
And Russia’s Energy Minister Alexander Novak chimed in for good measure saying the group should continue to strive for high compliance.
Oil prices have recovered from recent lows, in line with a rebound in broader markets, but will remain sensitive to the pace of the global economic recovery and news about global supply.
Gold prices surge higher, traders focus on U.S. Federal Reserve
Gold futures edged up 0.46% to trade at $1975.30
Gold prices rallied higher during Wednesday trading session ahead of the U.S. Federal Reserve’s policy decision, which is due for announcement later this evening. Gold futures edged up 0.49% to trade at $1975.30 at about 13.00 GMT.
Traders are expected to focus their attentions on the U.S Federal Reserve bank, knowing if it will continue to maintain an accommodative approach towards inflation and keep interest rates lower for a longer period.
In addition, the drop seen in the U.S dollar Index on Wednesday helped stabilize the yellow metal at most parts of London’s trading session early on Wednesday.
What you should know; The precious metal is regarded as a safe-haven asset and popular during times of geo-economic uncertainty. It has gained significantly during the onset of the COVID-19 onslaught with prices reaching as high as $2,072 in August.
(READ MORE:U.S Stocks post gains, led by Apple, Oracle)
Stephen Innes, Chief Global Market Strategist at AxiCorp in an email to Nairametrics spoke on the prevailing macros, gold traders and global investors are focused on.
“The Gold rally stalled as trader look to the FOMC for the next course of direction and projections, which extend to 2022. At the moment, records show only 2 of the 17 Fed members expect rates to move up in 2022.
“The main question for gold investors is that with improving data and a vaccine on the horizon, how many Fed members will start to whistle a less dovish tune and bring forward rate hike expectations.”
He explained that this could be where the policy debate most likely centers. But for gold to go significantly higher, he added that the Fed must make a credible promise to act full dove and aggressively drive inflation expectations higher.
OPEC predicts a deeper drop in global oil demand, based on serious coronavirus challenges
The world’s bloated oil inventories will subside more slowly than previously thought.
The Organization of Petroleum Exporting Countries (OPEC) forecasts that global oil demand will fall deeper in 2020 than was previously predicted, due to the coronavirus pandemic, and recovery being slower than expected next year.
This is coming after signs of a recovery in supply from US shale drillers, and a few days before the scheduled meeting of OPEC ministers.
This new outlook raises questions about the group’s decision to ease production cuts last month, which the cartel had been implementing as part of measures to boost the coronavirus-hit oil market.
OPEC added 760,000 barrels a day to the global oil market in August, just as its analysts were making a downward revision of demand for its crude by more than 1 million bpd.
OPEC and its allies are expected to hold an online monitoring meeting on Thursday, to assess whether the huge output cuts being implemented are still sufficient to stave off an oil glut, as the resurgence of coronavirus is hitting the global economy hard.
OPEC had also cut its demand forecast for 2021, and sees consumption rising by 6.62 million bpd, which is 370,000 bpd less than expected last month.
Oil prices slumped further below $40 per barrel on Monday, close to their lowest in over 2 months, as some oil firms like British Petroleum Plc, and Trafigura Group made worrying predictions about consumption.
OPEC and its allies, which include Saudi Arabia and non-members like Russia, had agreed to ease some of the output cuts, made at the height of the negative impact of the coronavirus pandemic on the oil market. This month’s report from OPEC’s secretariat in Vienna suggests that the move might have been premature.
OPEC had cut back on its global oil demand forecast, for each quarter to the end of next year, by an average of 768,000 bpd. This will lead to a collapse by an unprecedented 9.46 million bpd in 2020, averaging 90.23 million bpd.
The group simultaneously raised projections for production outside OPEC over the next 5 quarters, by an average of 394,000 bpd, mostly due to a stronger outlook for the U.S.
The combination of softer consumption forecasts and more robust non-OPEC supply numbers, depresses the requirement for crude from the cartel. The organization reviewed downwards, the estimated demand for its crude next year by 1.1 million bpd to 28.2 million bpd.
While OPEC is producing far below this level because of its agreement to curb supply, the revision indicates that the world’s bloated oil inventories will subside more slowly than previously envisaged.