Market News

Weak factory activity in China, a stronger U.S. dollar, and reports that OPEC+ is going to add more barrels to production in December have combined to push oil prices lower, setting them on a course to their third monthly decline in a row.

At the time of writing, Brent crude was trading at $64.61 per barrel, with West Texas Intermediate at $60.16 per barrel. That’s down from over $67 per barrel for Brent crude and $62 per barrel for WTI at the end of September.

“The market is now watching this weekend’s OPEC+ meeting and discussions of its output policy,” ANZ analysts said in a report, as quoted by the Wall Street Journal. “The U.S. sanctions on Russian oil companies significantly lift risks to supply,” which could provide motivation for OPEC+ to agree on another 137,000-bpd production boost for December.

According to Reuters, this would combine with rising non-OPEC supply to continue pressuring oil prices. The publication cited U.S. Energy Information Administration preliminary data suggesting U.S. crude output hit 13.6 million barrels daily in the week to October 24.

The prospect of China agreeing to buy more U.S. energy should have had a bullish effect on prices but that effect appears to have been offset by data showing factory activity in China shrank in October by more than analysts expected, falling to the lowest in six months. The PMI reading for the month stood at 49, versus 49.6 expected by economists polled by Reuters.

As regards the effect of U.S. sanctions on Russian oil flows and prices, ING analysts wrote that “Clearly, the price action suggests that the market is not convinced that we will lose a significant amount of Russian oil supply. Yesterday’s meeting between President Trump and President Xi only served to strengthen this conviction, with Russian oil flows to China apparently not part of broader talks between the two leaders.”

Warren Patterson and Ewa Manthey added that the implications of these developments were important since China as the only Russian oil buyer that could boost intake if India began to wind down its purchases in line with U.S. demands.

By Irina Slav for Oilprice.com