Oil headed for a sixth weekly advance after a keenly anticipated OPEC+ meeting delivered only a modest increase in output, which failed to assuage concerns over a widening supply deficit.
The oil-producing cartel agreed to a hike that amounts to just 0.4 percent of global demand over next month and August. There had been speculation that Saudi Arabia was preparing to pump significantly more as part of a reset of relations with the US, and there were even suggestions that Russia might be exempted from the alliance’s monthly supply agreements.
That did not happen, with West Texas Intermediate closing up 1.4 percent after the decision and trading near US$116 a barrel in Asia yesterday. A six-month rally in the US benchmark — the longest such run in more than a decade — now looks set to continue.
Photo: Reuters
A report showing US crude stockpiles falling more than twice as much as expected last week at the start of the summer driving season highlighted the growing supply deficit.
OPEC+ agreed to production hikes of 648,000 barrels a day for next month and August, about 50 percent larger than the increases seen in recent months. The decision came after the EU approved a partial ban on Russian oil imports and after months of pressure by Washington on Saudi Arabia.
There were doubts the group would be able to fully deliver on the pledged increases, given they are to be spread across its members, many of whom have struggled to raise output.
The decision by OPEC+ could mean 132,000 barrels a day each month of additional output from Saudi Arabia, the United Arab Emirates, Kuwait and Iraq, Citigroup Inc said in a note.
Prices have been marching higher in the past week as markets assessed the EU move, Chinese lockdowns were lifted and the US summer driving season got underway, it said.
“The agreed supply increases look big on paper, but in reality it is very unlikely the group will manage to hit these production targets,” said Warren Patterson, head of commodities strategy for the ING Groep NV, based in Singapore.
“Russian output is likely to edge lower in the months ahead as sanctions bite, while there’s limited spare capacity among other members,” he said.
ING’s forecast for the Brent crude oil price to average US$122 a barrel over the second half remains unchanged, he said.
Oil has been driven higher this year on rebounding demand, as countries withdrew COVID-19 restrictions, while Russia’s invasion of Ukraine has reduced supply from one of the world’s three-largest producers. A potential resurgence in consumption in China, the world’s biggest crude importer, is now threatening to add even more upward pressure to prices.
The ramp-up in OPEC+ supply would not be enough to balance a market that is shifting into deficit due to the demand recovery in China, Goldman Sachs Group Inc said in a note.
The bank said its expectations for output from the alliance are skewed downward, given the European ban on Russian imports and a lack of progress on negotiations with Iran. It reiterated its forecast for Brent to average US$125 a barrel in the second half.
The OPEC+ announcement also did not have much effect on oil’s market structure. Brent’s prompt time-spread was US$2.60 a barrel in backwardation — a bullish pattern where near term prices are higher than those further out — compared with $2.73 at the close on Wednesday.
US crude stockpiles fell about 5.1 million barrels last week, more than the median estimate, for a decline of 2.1 million barrels, an Energy Information Administration report said on Thursday.
New York-area gasoline stockpiles dropped to the lowest level since 2017.
TECH PARTNERSHIP: The deal with Arizona-based Amkor would provide TSMC with advanced packing and test capacities, a requirement to serve US customers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) is collaborating with Amkor Technology Inc to provide local advanced packaging and test capacities in Arizona to address customer requirements for geographical flexibility in chip manufacturing. As part of the agreement, TSMC, the world’s biggest contract chipmaker, would contract turnkey advanced packaging and test services from Amkor at their planned facility in Peoria, Arizona, a joint statement released yesterday said. TSMC would leverage these services to support its customers, particularly those using TSMC’s advanced wafer fabrication facilities in Phoenix, Arizona, it said. The companies would jointly define the specific packaging technologies, such as TSMC’s Integrated
China’s economic planning agency yesterday outlined details of measures aimed at boosting the economy, but refrained from major spending initiatives. The piecemeal nature of the plans announced yesterday appeared to disappoint investors who were hoping for bolder moves, and the Shanghai Composite Index gave up a 10 percent initial gain as markets reopened after a weeklong holiday to end 4.59 percent higher, while Hong Kong’s Hang Seng Index dived 9.41 percent. Chinese National Development and Reform Commission Chairman Zheng Shanjie (鄭珊潔) said the government would frontload 100 billion yuan (US$14.2 billion) in spending from the government’s budget for next year in addition
Sales RecORD: Hon Hai’s consolidated sales rose by about 20 percent last quarter, while Largan, another Apple supplier, saw quarterly sales increase by 17 percent IPhone assembler Hon Hai Precision Industry Co (鴻海精密) on Saturday reported its highest-ever quarterly sales for the third quarter on the back of solid global demand for artificial intelligence (AI) servers. Hon Hai, also known as Foxconn Technology Group (富士康科技集團) globally, said it posted NT$1.85 trillion (US$57.93 billion) in consolidated sales in the July-to-September quarter, up 19.46 percent from the previous quarter and up 20.15 percent from a year earlier. The figure beat the previous third-quarter high of NT$1.74 trillion recorded in 2022, company data showed. Due to rising demand for AI, Hon Hai said its cloud and networking division enjoyed strong sales
Protectionism: US trade chief Katherine Tai said the hikes would help to counter unfair trade practices from China, while boosting domestic clean energy investments US Trade Representative Katherine Tai (戴琪) defended stiff tariff hikes against countries such as China, saying that paired with investment, they were a “legitimate and constructive” tool for reinvigorating domestic industries. Tai’s comments come a week after sharp tariff increases on Chinese electric vehicles (EVs), EV batteries and solar cells took effect — with levies down the line on other products also recently finalized. The latest moves targeting US$18 billion in Chinese goods come weeks before next month’s US presidential election, with Democrats and Republicans pushing a hard line on China as competition between Washington and Beijing intensifies. In an interview on Thursday
RSS