AS in politics, a week is an awfully long time in the oil market.
Seven days ago, Saudi Arabia was denying a report that the members of the Organisation of Petroleum Exporting Countries and its allies (Opec+) were discussing an output increase ahead of their meeting this weekend.
But the latest slump in crude prices means that outcome now looks fanciful.
Indeed, another cut in targets is becoming more likely, even with European Union (EU) sanctions on Russian exports due to come into effect the next day.
Protests in China against the country’s zero-Covid policy are boosting the US dollar as a haven and spurring a broad selloff in commodities.
For oil, these headwinds add downward pressure to an already-fragile crude market: the demand outlook was weakening on concerns of high prices and recession.
Crude tumbled more than 3% on Monday, falling to levels not seen in almost a year.
When Brent crude prices were hovering in the mid-US$80s (RM360), a quick rollover of the existing Opec+ output targets looked the most likely outcome from the group’s Sunday meeting in Vienna, even if most members would like crude to be higher.
Today’s slump makes that less certain.
There is still huge uncertainty over how hard EU sanctions will hit Russia’s crude exports when they come into effect on Dec 5, or if they will have any impact at all.
Russia has already lost 90% of its market in northern Europe, and Mediterranean buyers are now starting to cut purchases, too. So far, the shunned barrels have been diverted to Asia.
EU members are struggling to agree on a price at which to cap Russian shipments to allow access to European ships and international insurance for the trade.
A proposed level of US$65 (RM292.79) a barrel – above the current selling price of Russia’s flagship Urals grade – is seen as far too generous by some, but as an absolute minimum for others.
Without agreement, there will be a blanket ban on providing European ships or services for Russian crude from next week.
But ministers are likely to hammer out a fudge, and as Javier Blas writes yesterday, the cap is purposefully designed to have a minimal impact on crude flows.
Saudi Arabia insists Opec+ remains “ready to intervene” in the market.
Unless crude prices recover in the next five days, intervention in the form of another output cut just got a lot more likely. — Bloomberg
Julian Lee is an oil strategist for Bloomberg First Word. The views expressed here are the writer’s own.