Bears have taken control of global oil markets on Monday, with the bullish mood and the willingness from bulls to open new long positions disappearing over the weekend despite no drastic change in market fundamentals.
Front-month October futures for Brent had moved down by almost 4% to trade just above $100 per barrel on the ICE commodity exchange in London close to the end of trading on Monday, albeit not on a heavy volume because of the summer recess.
Brent futures fell to a session low of $99.75 per barrel before recovering. Meanwhile, US benchmark West Texas Intermediate crude futures were down almost 5% at $94 per barrel, after touching a low of $93.49 per barrel during the day.
Today’s sell-off was broad as it was seen across next settlement months of the futures markets in London and New York, with the market remaining on the strong downward backwardation curve reflecting robust anticipation of higher availability of oil and lower demand for it in the upcoming months.
Senior analyst at Norway’s Rystad Energy Louise Dickson said the company forecasts the third quarter to be “a turning point in the global inventory build”, with oil reserves to start building instead of being drawn for the first time in two and a half years.
Representatives of a key alliance of oil producing states, known as Opec+, are due to meet on Wednesday to decide whether its members may continue their efforts to keep increasing oil production.
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Opec+ includes members of the Opec cartel and a number of its allies of which Russia remains the most important one due to the high volume of oil exports that the country continues to ship to international markets at large discounts despite international sanctions against the country.
Two of eight Opec+ sources who were surveyed by Reuters, said that a modest increase in oil production quotas for September is scheduled be discussed at the upcoming meeting. The rest said quotas are likely to be remain unchanged.
While on paper Opec+ by August will have fully unwound its record output cuts of the Covid-year of 2020, independent assessments showed the group as of June was still almost 3 million barrels per day short of its output target as some producing countries struggle to keep up with the increase of production quotas.
Libya and US oil output grow
Meanwhile, oil production in Libya hit 1.2 million bpd, country’s Oil Minister Mohamed Oun said in a telephone interview with Bloomberg, up from 800,000 bpd in July. The increase came after government officials last month reached an agreement with protesters and tribal leaders to reopen oilfields and export terminals largely shut-in this year.
A continued recovery in US oil production that was announced last week, is also thought to have played a major role in shaping Monday’s bearish tone.
A US Energy Information Administration weekly report suggested that during the week ended 22 July, the country’s producers boosted output by 200,000 bpd against the previous week to an average 12.1 million bpd, putting the country above Saudi Arabia.
Meanwhile, fears of an imminent global economic recession, a major discussion topic this summer, have been supported by sluggish economic activity data.
S&P Global’s final manufacturing Purchasing Managers’ Index (PMI) for the euro zone fell to 49.8 in July from June’s 52.1, crossing for the first time since June 2020 the 50 mark that separates growth from contraction.
China’s Caixin/Markit PMI declined to 50.4 in July from 51.7 in the previous month, also below analyst expectations.