Oil rebounds to 10-month low after Saudi Arabia denies OPEC supply boost report

Oil rebounds to 10-month low after Saudi Arabia denies OPEC supply boost report

Oil prices rebounded from a 10-month low on Monday after Saudi Arabia “categorically” denied a report that OPEC was considering a production boost that would help counter the loss of Russian supplies.

Brent crude, the international benchmark, fell 6% to $82.79 a barrel, before narrowing its slide to 2%, to trade at $85.95. West Texas Intermediate, the US marker, fell by a similar margin but later pared losses to trade down about 2% at $78.50.

Prices for each benchmark hit their lowest level on an intraday basis since January, before Russia’s invasion of Ukraine disrupted global crude markets and sent prices soaring.

The volatility came after the Wall Street Journal reported that Saudi Arabia and other OPEC producers were discussing a production boost of up to 500,000 barrels per day for the group’s meeting in Vienna on 4 december. Saudi Arabia, the group’s de facto leader, later said it was “well known” that the cartel did not discuss “any decision before its meetings”.

Any increase in production would ease the market after the OPEC+ group, including the cartel and allies such as Russia, said in October it was cutting production targets by $2 million a day to support prices. – a move that enraged Washington, which accused the cartel of “aligning” with Russia and harming the global economy.

It would also come a day before the EU is set to introduce an embargo on Russian oil shipments and expects G7 countries to cap the price of Russian crude.

“The current cut of 2 million barrels per day by OPEC+ continues until the end of 2023 and if it is necessary to take additional measures by reducing production to balance supply and demand, we remain always ready to intervene,” Saudi Energy Minister Prince Abdulaziz bin Salman said in a statement.

The IEA warned that these major market interventions could create huge uncertainty about the direction of prices.

Mark Haefele, chief investment officer at UBS Global Wealth Management, nevertheless expected Brent prices to return to $110 a barrel in 2023 as supply tightens and demand continues to rise.

“OPEC is cutting output this month, with crude exports so far in November down more than 2 million barrels per day from October,” Haefele said. The upcoming European ban on Russian crude could also limit production.

In equity markets, Wall Street’s benchmark S&P 500 fell 0.6% early in the afternoon, while the tech-heavy Nasdaq Composite fell 1.1%. In Europe, the regional Stoxx Europe 600 fell 0.1% and London’s FTSE 100 gave up gains to trade down 0.2%.

The U.S. dollar index, which tracks the currency against six others, added 1% on Monday, extending last week’s rally, although the greenback remains down about 3% for November.

Speculation that the greenback could have peaked in late September was fueled by October’s weaker-than-expected US inflation figure and hopes that China was on the verge of easing its zero-Covid stance.

Investors were less bullish on the latter this week, however, after provincial capitals Shijiazhuang and Guangzhou implemented stricter Covid controls to limit cases. Hong Kong chief executive John Lee, meanwhile, tested positive just days after interacting with President Xi Jinping at the Asia-Pacific Economic Cooperation forum in Bangkok.

“The Reopening Rally [in China] was played too fast, it won’t happen until the second quarter [of 2023] at least,” said Paul O’Connor, head of the UK-based multi-asset team at Janus Henderson. “China has been an important catalyst for the rallies over the past few weeks, but investors are questioning whether they’ve been too bullish.”

Hong Kong’s Hang Seng index fell 1.9%, while China’s CSI 300 edged down 0.9%. Elsewhere, Japan’s Topix rose 0.3% and South Korea’s Kospi lost 1%.

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