Saudi Arabia’s warning to OPEC+ cheaters and short-sellers alike helped oil prices stage their biggest weekly rally since June, despite a grim start to the week as industry heavyweights painted a troubling demand picture for the petroleum complex.
Futures in New York rose 10 percent this week following a show of determination on Thursday by Saudi Arabia, the most influential nation in OPEC, to defend the market.
The Saudis hinted that they are prepared for new production cuts and lambasted OPEC+ members that have cheated on production quotas.
Prices briefly fell as much as 1.6 percent on Friday following an announcement from Libyan Field Marshall Khalifa Haftar that he would allow crude production and exports to resume.
However, while Haftar reached the agreement with the country’s deputy prime minister, it was unclear whether the deal that excluded the National Oil Co would actually restart exports.
“Depending on Libyan oil supply coming online seems like it’s a pretty risky bet,” so traders likely were not willing to make sizable wagers on it heading into the weekend, Strategic Energy & Economic Research Inc president Michael Lynch said.
Saudi Arabia’s unambiguous comments on Thursday, though, gave market participants the confidence that they can “rely on OPEC to keep the taps turned off for a bit longer,” Lynch said.
Haftar controls most of eastern Libya, and has halted operations and shipments from his territory as part of a campaign against the internationally recognized Tripoli government.
The OPEC member is pumping just 80,000 barrels a day, but produced 1.2 million a day last year.
Oil reversed last week’s losses on Friday, which pushed West Texas Intermediate (WTI) for October delivery up 0.3 percent to US$41.11 a barrel amid a slew of downbeat demand forecasts from the International Energy Agency to Trafigura Group and BP PLC. The contract is up 10 percent for the week.
Brent crude for November delivery on Friday fell 0.3 percent to settle at US$43.15 a barrel, but rose 8.3 percent for the week.
Helping support prices this week, US government data showed crude and gasoline stockpiles declining. US oil stockpiles are at their lowest since April.
However, crude might not be out of the woods just yet, with distillate supplies at record highs, and refining margins for the fuel deteriorating in the US and Europe.
Meanwhile, rising COVID-19 infections in Europe raised the specter of a return to tighter restrictions that have crippled consumption.
“The oil markets have made a nice recovery from their lows,” helped by the decline in US crude supplies, said Bill O’Grady, executive vice president at Confluence Investment Management LLC in St Louis, Missouri. “But the demand data just doesn’t look all that good.”
There is debate over the state of the global supply picture heading into the end of the year.
Among the latest voices to chime in, Goldman Sachs Group Inc said that global oil inventories should draw down this month and the market is likely to see a deficit of 3 million barrels a day in the fourth quarter of this year.
That comes after conflicting views this week out of Vitol Group BV and Trafigura Group Ptd Ltd (托克集團) about whether supplies would shrink or head back into surplus by year-end.
On a positive note, the spread between WTI’s nearest contracts strengthened to its narrowest contango structure in roughly a month. A narrowing contango signals easing concerns of oversupply.
The spread “tends to either blow out or tighten as you approach expiration, but it’s supported by the fundamentals here,” said Bob Yawger, head of the futures division at Mizuho Securities Co. “When you have the contango start to narrow, owners of crude oil are going to be less likely to stuff barrels into storage.”
Companies operating in the Gulf of Mexico might see further storm-related disruption, even as the region still recovers from Hurricane Sally with more than 21 percent of oil production shut in.
Among companies preparing for a tropical depression heading for the region, Royal Dutch Shell PLC said it is shutting its Perdido oil and natural gas production hub in the western Gulf of Mexico.
Additional reporting by AFP, with staff writer
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