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Market braces for key meet as Opec+ holds upbeat demand view

Iraq's pledge to meet group output targets boost bullish sentiment

Published: Sun 12 Nov 2023, 4:28 PM

Updated: Mon 13 Nov 2023, 3:26 PM

By
Issac John

A worker at the Rumaila oil field in Basra, Iraq. — Reuters file

The global oil market is bracing for the Opec+ alliance meeting on November 26 for a key production policy decision as the organisation continues to hold an upbeat view on world crude demand despite growing concerns about the state of the global economy.

Oil prices climbed around 2.0 per cent on Friday, lifted by Iraq’s support for Opec+’s production cuts and short-covering by traders ahead of the weekend. Despite the gains, oil recorded a 4.0 per cent weekly loss, marking the third consecutive week of declines.

The rally was partly driven by traders addressing record short positions and was supported by confirmations from Saudi Arabia and Russia on continued output cuts. US rig count reductions also hinted at future output decreases.

Brent futures rose $1.42 or 1.8 per cent to settle at $81.43 a barrel, as the US West Texas Intermediate (WTI) crude increased by $1.43 or 1.9 per cent to trade at $77.17 per barrel.

Iraq, one of the founding and top members of Opec, said in a statement on Friday that Baghdad was committed to the Opec+ agreement on determining production levels, two weeks ahead of a key meeting of the producer group.

Iraqi Oil Minister, Hayan Abdel Ghani, has said that oil exports from southern fields increased by 350,000 barrels per day, without giving a timeframe.

Vijay Valecha, chief investment officer, Century Financial, said in a note that last week oil held near a three-month low after plunging almost 7.0 per cent over the previous two sessions on signs the demand outlook is deteriorating. “Oil prices have tumbled sharply over the last three weeks amid growing concerns over weaker demand. The focus has returned to fundamentals, with refining margins falling and stockpiles swelling in China, the biggest importer. Asia’s largest economy returned to deflation, according to data released Thursday.”

Amid the uncertainty and dim market outlook Opec maintained an optimistic view on world oil demand. Its Secretary General Haitham Al Ghais has told the Argus European Crude Conference in London that the demand scenario remained buoyant. “We are positive on the demand; we’re still quite robust on demand.”

His optimism comes ahead of the Opec+ alliance meeting during the last week of this month. “All I can say for now is we continue to monitor supply and demand fundamentals on a daily basis. When the ministers meet in Vienna at the end of this month they will review all of this and take appropriate measures.”

In its latest monthly report in October, Opec left its demand forecast for both 2023 and 2024 unchanged, despite fears of slowing economies and demand destruction. Global oil demand is set to rise by 2.4 million bpd this year and by another 2.2 million bpd next year amid the improving Chinese economy, according to the cartel.

Last week, Saudi Arabia and Russia confirmed that they would continue oil output cuts through year-end.

In the US, energy firms cut the number of oil rigs operating for a second week in a row to the lowest since January 2022, energy services firm Baker Hughes said. The rig count points to future output.

Weak Chinese economic data this week increased worries about faltering demand as refiners in China, the largest buyer of crude from Saudi Arabia, the world’s largest exporter, asked for less supply for December.