In brief summary comments on oil via ANZ.
- Crude oil prices rallied sharply as expectations of a large cut to OPEC production rose.
- The OPEC+ alliance is due to meet in Vienna on Wednesday to review its production agreement. The group has already signalled that it is willing to intervene to support prices. Brent crude is down more than 25% over the past few months amid concerns of weaker demand as central banks tighten monetary policy. A cut as large as 1mb/d would tighten the market considerably.
- Inventories are relatively low and European sanctions are not due to kick in until December. This tightness could be exacerbated by a rebound in Chinese demand if it can contain outbreaks of COVID-19. Prior to China closing for Golden Week, it issued new crude oil import and export quotas as it seeks to revive its economy.
- The other complicating factor is Europe’s proposed price cap on Russian oil. The EU aims to announce a new deal on sanctions shortly. Russia has already warned it will cut supplies to countries that agree on any price cap.
Earlier posts on the coming OPEC+ meeting:
