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Saudis, Russia rush to rescue the market, 2 weeks early


By Barani Krishnan

Investing.com — The OPEC+ meeting is two weeks away, but the Saudis and Russians have decided not to sit idly by and let the market crash further.

In an urgent response to a Wall Street Journal story on Monday, Saudi Energy Minister Abdulaziz bin Salman denied that his 23-nation oil-producing coalition was trying to production increase to 500,000 barrels per day to be announced at the December 4 meeting of OPEC+. .

If the WSJ report is correct, that would be the bottom line for the 2 million bpd cut OPEC+ announced in November. It would be a small increase in barrels, but huge in terms of volume. goodwill, which does wonders for the relationship between Saudi Arabia and the United States, but unfortunately continues to hamper the already free-falling crude oil prices.

Both New York-traded West Texas Intermediate, or WTI, the benchmark for U.S. crude, and London’s Brent, a global gauge of oil, hit their lowest levels since the start of the year in early trading. Monday, partly based on a WSJ story.

However, the report is not true, Saudi Energy Minister Abdulaziz said in a statement issued by state news agency SPA.

“It is well known that OPEC+ does not discuss any decisions before the meeting,” Abdulaziz said, referring to the December 4 meeting.

He added: “The current OPEC+ cuts of 2 million barrels per day will continue until the end of 2023, and if further measures need to be taken by reducing production to balance supply and demand, we always ready to intervene.”

And as expected, Russian Deputy Prime Minister Alexander Novak, Abdulaziz’s closest non-Gulf ally in OPEC+, offered his own reaction to the upcoming December 5 decision by the Western nations. West on potential import bans and price ceilings on Russian oil.

Novak reiterated Russia’s position not to sell its oil to countries that would participate in the price cap, a scheme devised by the West to limit the funding that Moscow can put in the fight against the war. back to Ukraine. The Russian deputy prime minister also said another thing that helped bring crude prices back to the positive side of the day: in the event of a ceiling in oil prices, Russia could also reduce oil production.

“Lower supply will be a result of Russia’s oil price cap,” Novak added.

WTI, which hit a session low of $75.30 on Monday, marking a bottom since January, had recovered most of their losses by midday, in response to comments by Abdulaziz and Novak . US benchmark crude oil prices were steady at $79.73 per barrel, down 35 cents, 0.4%.

Sunil Kumar Dixit, director of technical strategy at SKCharting.com, said oversold conditions could push WTI back towards the 100-Week Simple Moving Average of $81.30. “But it has to hit and close above $80. On the other hand, there is always a risk if it moves towards the $72.50 and $71 lows.”

Global benchmark Brent crude fell to $82.36 earlier, its lowest level since February, before recovering to stabilize at $87.45, down 17 cents, or 0.2% on the day. .

“It is interesting to see the coordinated response we have received from Saudi Arabia and the Russians in denying the report by the Saudis,” said John Kilduff, founding partner at energy hedge fund Again Capital in New York. WSJ and set a floor for the oil sell-off.” “There are two weeks left until the OPEC+ meeting and they have decided that there is too much price risk if they stay quiet until then.”

Crude oil prices also briefly entered “contango” mode on Friday — a market structure that identifies weakness — for the first time since 2021. Following the move, last month’s oil contract on the futures market trades at a discount from the previous month . While the difference itself may be small, it forces buyers who want to hold an oil position at contract expiration to pay more to move to a new previous month’s contract.

With such negativity on crude now, all eyes are on what the OPEC+ alliance of oil producers will do when it meets on December 4.

OPEC+ – the alliance that includes OPEC, or the 13-member Organization of the Petroleum Exporting Countries led by Saudi Arabia, with 10 other oil producers led by Russia – agreed at its previous meeting on production cuts of 2 million barrels per day to boost Brent and US crude prices have fallen sharply from highs in March.

Immediately after that OPEC+ decision, Brent fell from a low of around $82 a barrel to nearly $100 within a few days (it had hit nearly $140 earlier in March). WTI went from $76 to $96 (WTI was just over $130 in March). Both benchmarks have lost all of those gains over the past two weeks, raising the question of whether OPEC+ will continue to cut even more to prop the market up again.

Abdulaziz’s comments on Monday signaled the possibility of further cuts, especially as he said the union would be “ready to intervene” if needed to “take further measures by reducing production to balance supply”. and demand”.

OPEC+’s 2 million-barrel reduction in itself did not sit well with the United States.

Relations between Saudi Arabia and the United States have hit a low due to disagreements over oil production this year, although the WSJ reported on Monday that US officials are looking ahead to the OPEC+ meeting in December 4 with some hope.

Discussion of increasing production comes after the Biden administration told a federal court judge that Saudi Crown Prince Mohammed bin Salman should have sovereign immunity from a federal lawsuit by the United States. in connection with the brutal murder of Saudi journalist Jamal Khashoggi. The decision to exempt is a concession to Mohammed, cementing his position as the de facto ruler of the kingdom after the Biden administration tried to isolate him for months.

The WSJ acknowledged in its report that this would be an unusual time for OPEC+ to consider increasing production, with global oil prices falling more than 10% since the first week of November due to a flurry of Covid news from China. Country.

Rising coronavirus cases in China have prompted new lockdowns in some of the country’s biggest cities, raising concerns about slowing crude demand in the country’s biggest oil importer. world. The country is currently grappling with its worst COVID outbreak since April, which saw several cities go under lockdown. A report earlier this month said some Chinese refiners had asked Saudi Aramco (TADAWUL:2222) to supply lower volumes of oil in December, which could lead to oil shipments to the country. slow down. China has also increased its refined fuel export quota, likely indicating a glut in crude stockpiles due to weakening demand.

Even so, some OPEC+ delegates have apparently told the WSJ that a production increase could take place in December to meet expectations that oil consumption typically increases in the winter. Oil demand is expected to grow 1.69 million bpd to 101.3 million bpd in the first quarter of next year, compared with the 2022 average.

Saudi Energy Minister Abdulaziz also previously said the kingdom would supply oil to ‘all who need it’.

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