Oil rebounds after Saudi denies OPEC+ output report

On Monday, oil prices recovered from earlier losses after Saudi Arabia had denied news alleging that it was discussing an increase in oil output with OPEC and allies.

Brent crude futures for January settled at $87.45, shedding 17 cents. WTI crude futures for December settled at $79.73 per barrel, falling 35 cents ahead of the contract’s expiry later on Monday.

Oil benchmarks had plunged by more than $5 a barrel early, hitting 10-month lows, after the Wall Street Journal reported an increase of up to 500,000 barrels per day will be considered at the OPEC+ meeting on December 4.

Oil then retraced its losses after Saudi Arabian energy minister Prince Abdulaziz bin Salman said the kingdom is sticking with output cuts and not discussing a potential oil output increase with other OPEC oil producers, state news agency SPA reported, denying the Journal report.

OPEC+ has recently cut output targets and the Saudi energy minister was quoted this month as saying the group will remain cautious. Releasing more oil amid weak Chinese fuel demand and US dollar strength would have moved the market deeper into contango, encouraging more oil to go into storage and pushing prices still lower.

Expectations of further increases to interest rates have buoyed the greenback, making dollar-denominated commodities like crude more expensive for investors. The dollar rose 0.9% against the Japanese yen to 141.665 yen, on pace for its largest one-day gain since Oct. 14. read more

Apart from the weakened demand expectations, due to China’s COVID restrictions, the US dollar’s rally on Monday is also a bearish factor for oil prices.

Risk sentiment is fragile as all the recent major countries’ economic data point to a recessionary scenario, especially in the UK and Eurozone, and hawkish comments from the US central bank last week also sparked concerns over the US economic near future.

New COVID case numbers in China remained close to April peaks as the country battles outbreaks on the national level. Oil and gas stocks fractured on Monday morning as the selloff in crude oil prices intensified as the energy sector is getting prepared to face a probable slowdown in demand from the world’s largest importer of oil.

In its latest research note, Goldman Sachs slashed its crude oil price forecast for the fourth quarter by $10 per barrel to $100 a barrel. Aside from COVID concerns in China, the investment bank also cited higher-than-expected oil production and exports from Russia ahead of the European Union’s oil embargo, which is set to take effect beginning December 5.

The EU has decided to ban the imports of Russian crude oil from that day, and further ban imports of oil products from Russia starting February 5, 2023.