Tuesday, January 31, 2023
HomeMarketOil futures push higher as market shakes off OPEC production rumblings

Oil futures push higher as market shakes off OPEC production rumblings

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Oil futures recovered early Tuesday from the steep slump instigated Monday by mixed news that major producers were mulling churning out more oil.

Prices were generally lower Monday, but ended well off session lows after Saudi Arabia’s energy minister denied a news report that the Organization of the Petroleum Exporting Countries and their allies were weighing a production increase.

Crude has been under pressure on continued worries over China’s demand outlook in the face of renewed COVID-19 lockdowns.

Price action
  • West Texas Intermediate crude for January
    CL00,
    +1.55%

    CLF23,
    +1.55%
    gained $1.22, or 1.5%, at $81.25 a barrel. The contract fell 7 cents to finish at $80.04 a barrel Monday after dropping more than 5% at its Monday session low, with WTI hitting an intraday low not seen since January.

  • January Brent crude
    BRN00,
    +1.64%

    BRNF23,
    +1.64%,
    the global benchmark, advanced $1.40, or 1.6%, at $88.86 a barrel. The contract lost 17 cents, or 0.2%, ending at $87.45 a barrel Monday. Both Brent and WTI saw their lowest finish since late September.

  • Back on Nymex, December gasoline
    RBZ22,
    +2.61%
    rose 2.6% to $2.5017 a gallon, while December heating oil
    HOZ22,
    +0.72%
    rose 0.7% to $3.5206a gallon.

  • December natural gas
    NGZ22,
    -2.08%
    fell 2% to $6.642 per million British thermal units.

Market drivers

To start the week, both WTI and Brent briefly slumped to levels last seen in January after ending Friday at two-month lows.

The Wall Street Journal, citing unnamed delegates, first said Saudi Arabia and other producers from OPEC were discussing an output increase of as much as 500,000 barrels a day. Such a move would help ease tensions with the Biden administration and keep energy flowing as new efforts to curtail Russia’s oil industry take effect.

Crude subsequently trimmed losses after news reports said Saudi Arabia’s energy minister told a state news agency that there had been no discussions of an output increase.

“This is remarkable given that OPEC+ has reduced its oil production noticeably since the beginning of November, in accordance with its early October decision,” said analysts at Commerzbank in a Tuesday morning note.

The Commerzbank team said a cut will probably be more than 1 million barrels per day if all the countries whose production levels were recently in line with the agreement comply with the reduced production target applicable from November.

“This alone should be enough to roughly balance the oil market this quarter, meaning that the heavily depleted stocks will not be replenished,” they continued. “After another quarter in which supply and demand are likely to be more or less equal, the oil market risks being undersupplied from the second quarter of 2023 — a deficit that could even turn out to be sizeable in the second half of 2023.”

On the demand side, focus remains on China and its latest COVID-19 developments. The southern Chinese city of Guangzhou on Monday locked down its largest district, suspending public transit and requiring residents to present a negative test if they want to leave their homes, the Associated Press reported.

Natural-gas prices fell Tuesday after gains in recent days following a historic snowstorm that hit New York state over the weekend.

NOAA’s 6-to-10-day outlook shows temperatures rising above normal for most of the central U.S., with colder temperatures only predicted for part of the Northeast, which may reduce heating demand in late November, analysts said. Still, the weather service’s updated 3 to 4-week outlook covering early-to-mid December indicated colder-than-normal conditions returning for nearly all the northern U.S., which could boost heating demand again.

Credit: marketwatch.com

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