After hitting eight month lows last week due to fears of rising interest rates triggering a global recession, oil prices regained some of their losses Monday.
As the markets adjusted to the Fed’s latest policy decision, crude prices began to regain their losses. Brent crude had risen $0.17, or 0.2%, to $86.32 per barrel by 01:16 GMT, as US benchmark West Texas Intermediate crude rose $0.21, or 0.3%, hitting $78.95 pre barrel. Both contracts had lost 5% on Friday.
Analysts noted that prices should benefit as Russia prepares to escalate the military conflict in Ukraine, and as new EU sanctions go into effect on Russian oil exports in December.
Commonwealth Bank analyst Vivek Dhar said, “This is really the big question mark for oil in forecasting the next few quarters – how do weaker demand projections weigh up against EU sanctions.”
Dhar added, “It’s still going to be challenging for the market to find that oil to replace Russian supply.”
As prices drop, attention will turn to the Organization of the Petroleum Exporting Countries and its allies who are led by Russia, together called OPEC+. Analysts will look closely for indications of what decision they will come to on production quotas at their next meeting October 5th. The Cartel has issued statements indicating it will make decisions based upon supporting prices in the $90 range, because excess production capacity is limited, and it does not want to set off too much demand that might tax that production capacity.
ANZ Research analysts said in a note, “The sell-off could see OPEC intervene again,” as they highlighted remarks by Nigeria’s oil minister Timipre Sylva, who noted OPEC would consider output cuts due to how current prices were hurting the budgets of some member nations.
However analysts note that currently the majority of OPEC+ members are failing to make their current production quotas, and reducing those quotas would probably not affect their overall output, or the market supply, as a result.
Dhar said of any potential OPEC cuts, “I don’t think it’s going to be the game changer.”
Last week data was released which showed that in August, OPEC+ nations fell 3.58 million barrels per day short of the Cartel’s production quotas, which was an even bigger shortfall than the previous month.
