Ahead of this weekend’s meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies (OPEC+), oil prices are still under pressure. According to ING commodities analysts’ statement on Monday, the firm may completely roll over supply cutbacks at least into the third quarter given the lower market.
Last week, despite uncertainty in the global commodities market, crude oil prices closed higher on Friday. ING said that ICE Brent had dropped more than 2.2% on the week. poorer refinery margins are expected to be a cause for worry, according to analysts, and a negative dated Brent-to-frontline (DFL) swap indicates a poorer physical North Sea market.
The recent weakness in the market increases the likelihood of a full rollover of OPEC+ additional voluntary cuts at least through the third quarter of this year, according to ING note. Commodities strategists said expectations for such action are growing, so anything less will disappoint the market.
They noted, however, that fundamentally the market only needs to see a partial rollover, so there is a risk that OPEC+ overtightens the market in the third quarter of the year. According to the calendar, OPEC+ was scheduled to meet on June 1 to discuss output policy, however, this meeting has been pushed back to 2 June and will also be a video conference rather than an in-person meeting.
The latest positioning data shows that speculators reduced their net long in ICE Brent by 67,252 lots over the week, leaving them with a net long of 146,250 lots as of last Tuesday. This is the smallest position speculators have held in Brent this year. The move in the week was driven fairly evenly by longs liquidating and fresh shorts entering the market.
The gross short in Brent stood at 120,561 lots last Tuesday—- the largest short since November 2020. A rollover of OPEC+ cuts would likely flush out some of these shorts, according to ING.
International benchmark Brent crude traded at $81.19 per barrel, falling by around 3.3% relative to the closing price of $83.98 a barrel on Friday last week. West Texas Intermediate (WTI), the American benchmark, traded at $76.69 a barrel, a decrease of about 4.2% from last Friday’s session, which closed at $80.06 per barrel.
Both benchmarks started the week with price rises after Tehran confirmed the deaths of Iranian President Ebrahim Raisi, Foreign Minister Hossein Amir-Abdollahian, and other officials in a helicopter crash in the country’s northwestern province on Sunday.
Supply fears in favour of higher oil prices were stoked by worries about the political fallout in the oil-producing country but were later offset by demand concerns in the US.
The US Federal Reserve (Fed) released its minutes on Wednesday, revealing that the policy rate may remain at higher levels for longer than expected, while some bank officials said they were open to increasing interest rates if necessary.
After the minutes were published, the probability of the bank reducing interest rates in September fell to 50% from 65% prior to their release. Fed official statements warning against acting hastily on interest rate cuts raised concerns of a faltering demand appetite in global oil markets.
Further signaling a drop in demand in support of lower prices were the results of the Energy Information Administration’s (EIA) inventories on Wednesday, which showed a stock build that far exceeded market expectations. US commercial crude oil inventories increased by 1.8 million barrels during the week ending May 17, against the market expectation of a drop of around 2.4 million barrels.
Over the same period, strategic petroleum reserves, which are excluded from commercial crude stocks, also increased by about 1 million barrels.
