The October OPEC+ Ministerial Meeting brought no surprising announcements as all participating states agreed that sticking to the pre-charted course would be in the collective interest of the group. As a consequence, crude prices rose to their highest in 3 years (with WTI moving in close to a 7-year peak) as the December ICE Brent contract was already trading above $82 per barrel. Whilst there remain downside risks that could throw cold water on the price rally, most notably China’s power crunch that could bite into October refining rates, it will take several days if not weeks until the market starts noticing those signs, OilPrice said.
The strength of a price signal depends on both the real level of prices adjusted for inflation and the rate of changecompared with recent years. In terms of the rate of change, prices are already sending a strong signal about the need to increase production and reduce consumption, as the recovery in demand has outstripped supply after last year’s coronavirus-induced slump. Front-month Brent futures are currently trading at more than $82 per barrel, up from less than $38 at the end of the same month last year, one of the fastest price increases in percentage terms for three decades.
Rapid price escalation is characteristic of the first year of a cyclical upswing, when consumption bounces back and grows above-trend, while producers continue to withhold output, scarred by memories of the recent slump. The impact is relatively insignificant over periods of 2-3 years, small enough to be ignored, but becomes increasingly significant over 5-year to 20-year horizons. The dollar has lost almost a quarter of its consumer purchasing power since oil prices peaked at more than $140 per barrel in 2008. If record Brent prices in 2008 are restated at the purchasing power of the dollar in 2021, prices peaked at more than $180 per barrel, Reuters said.
The American Petroleum Institute (API) on Tuesday reported another surprise build in crude oil inventories of 951,000 barrels for the week ending October 1. This compares to analyst expectations for a loss of 300,000 barrels for the week. It is the second week in a row that estimates were on the wrong side of zero. In the previous week, the API reported a surprise build in oil inventories of 4.127 million barrels —a market shock considering the 2.333 million barrel draw that analysts had predicted for that week.
Following weeks of speculation about a potential sale or even closure of the Hurricane Ida-damaged Alliance Refinery in Louisiana, US refiner Phillips 66has reportedly decided to repair and restart the 255,000 bpd capacity refinery, OilPrice said.
Saudi Aramco expects to hit 13 million b/d production capacity by 2027, up 1mbpd from current levels of sustained output, largely by means of ramping up offshore production from the Marjan, Berri and Zuluf fields. Saudi Arabia’s state oil giant Aramco continues to see healthy global oil demand ahead and expects to have boosted its oil production capacity to 13 million barrels per day (bpd) by 2027 from 12 million bpd now, Saudi Aramco’s chief executive Amin Nasser said on Monday.
Russia’s national oil company Rosnefthas reportedly signed a new long-term supply deal with trading firm Vitol, stipulating supplies of 9 million tons per year, the first such deal since their 2013 contract. In June, Rosneft signed a preliminary agreement to sell a 5% stake in Vostok Oil to a consortium of Vitol and Mercantile & Maritime, and planned to finalise the deal this autumn. Trafigura, another global trader and a long-standing partner of Rosneft, bought a 10% stake in Vostok Oil for 7 billion euros ($8.1 billion) earlier this year. The new deal with Rosneft is the first for Vitol in eight years after its previous five-year supply agreement with the Russian state oil company signed in 2013. Under the agreement, Vitol will this month load 400,000 tonnes of Urals from Baltic ports, 80,000 tonnes from the Black Sea port of Novorossiisk, and 300,000 tonnes of ESPO Blend from Kozmino port, two of the sources said.