Oil is down, with the market still concerned about weakening demand and against a backdrop of refinery maintenance. The prospect of a possible production cut by the OPEC+ cartel does not impress.
The price of a barrel of North Sea Brent crude for November delivery, which was the last day of trading and used as a benchmark contract, lost 0.59% to close at $87.96.
U.S. West Texas Intermediate (WTI), also due in November, fell 2.14 percent to $79.49.
This had not happened since March 2020, when the black gold recorded a decline of over a quarter. These three months “undermined by the gloom and doom announced severe declines,” commented Edward Moya, Oanda, in a note.
And the decline isn’t over, warned Mark Waggoner of Excel Futures. “It’s late summer and U.S. refineries are starting their maintenance operations,” which traditionally occur in the early fall, a time of low demand.
The specialist also expects a continued decline of Wall Street, “which will contribute to lower prices” of crude “with the strong dollar. He expects WTI to be close to $70 in two to three weeks, a level it has not seen since December 2021.
The market expects the Organization of the Petroleum Exporting Countries (OPEC) and its allies in the OPEC+ agreement to announce a production cut after its meeting on Wednesday.
According to Bart Melek of TD Securities, the consensus is for a possible cut of 500,000 to one million barrels per day by the cartel starting in November. For him, such a reduction “could suggest that, barring a hard landing (of the economy), we are at a bottom for crude prices.
“A significant reduction seems likely, the question being whether it will be large enough to offset the decline in demand caused by the ongoing economic downturn,” warned Oanda’s Craig Erlam.
The size of the potential cut will matter, especially since the cartel is now well short of its official targets and has produced 3.58 million fewer barrels daily than expected.
“I don’t think it’s going to change much,” argues Mark Waggoner.
Many analysts see the market recovering within a month as the Northern Hemisphere enters the cooler months, with the war in Ukraine and sanctions against Russia another support.
“Prices will tighten with winter, and now that the drop in demand has been built in, prices should stabilize by the end of the year,” according to Edward Moya.
In the options market, the most popular position is for a buy at $100 WTI, indicating that many traders see prices going beyond that in the coming months.
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