Oil prices rise ahead of OPEC meeting

2023.06.02 12:20

Oil prices rise ahead of OPEC meeting

By Kristina Sobol  

Budrigannews.com – Crude prices surged once more on Friday as investors feared that the OPEC+ alliance of oil producers would announce a third production cut in nine months, significantly reducing weekly losses.

Crude was up $1.63, or 2.3%, to $71.73 per barrel in New York-traded West Texas Intermediate by 10:30 ET (14:35 GMT), or four hours prior to market settlement. The WTI was down 1% for the week. The benchmark U.S. crude reached a four-week low of $67.03 on Wednesday.

To $76.03, London-traded gained $1.75, or 2.4%. Brent was down 1% for the week, just like WTI. On Wednesday, the oil benchmark fell to a four-week low of $71.39.

Early in the week, worries about an unresolved U.S. debt ceiling agreement and the possibility that the central bank’s policymakers will raise rates once more on June 14 contributed to a decline in crude prices. However, OPEC+ ministers are meeting on Sunday to discuss market-supportive action for crude prices, which have decreased by more than 10% this year. Speculation that market bulls would be disappointed by the absence of production cuts was primarily responsible for the oil market’s weakness.

Crude traders also prepared for the possibility of OPEC+ imposing another rate hike, even if modest, to demonstrate its control over the market. By Friday, however, there appeared to be more positives than negatives for those who were long oil, with President Joe Biden poised to sign a new debt ceiling agreement passed by the Senate and economists still betting on a Fed rate pause despite stronger-than-expected performance in May.

Craig Erlam, an analyst at the online trading platform OANDA, stated, “Oil prices are edging higher into the end of the week, possibly a sign of nerves appearing before the OPEC+ meeting this weekend.” While there is by all accounts a generally held view that the gathering will not declare any further cuts, it’s quite significant that the equivalent was valid at the last gathering and afterward the gathering reported cuts of generally another million barrels.”

The 13-nation Organization of the Petroleum Exporting Countries (OPEC), or OPEC+, is led by Saudi Arabia. OPEC+ is also made up of 10 other oil producers who are run by Russia. 

In a warning to oil short sellers last week, Saudi Energy Minister Abdulaziz bin Salman hinted at further reductions. However, Russian President Vladimir Putin later stated that oil prices were approaching levels that were “economically justified,” indicating that Moscow might not believe that additional output reductions were required. Because of the perception that the two largest powers in OPEC+ weren’t on the same page, this caused crude prices to fall.

OPEC+ has had limited success this year in bolstering the market through supply squeezes, despite the possibility of additional cuts being announced over the weekend.

In addition to its commitment to shed 2 million barrels per day in October, the alliance announced a cut of 1.7 million barrels per day in April.

Crude prices only went up for two weeks after the April cut was announced before falling by about 15% over four weeks. The earlier promise to cut 2 million barrels didn’t work out as well, so prices only gained a few days before falling to 15-month lows in March.