Oil pricing returns to the agenda for commodities this week, though the events in the financial markets in Britain will still grab centre stage, especially with the Conservative Party’s annual conference likely to generate more headlines about the problems this week.
The OPEC+ group is holding the first in-person meeting since March 2020 in Vienna on Wednesday and that will see the first cut in the group’s global production target in more than two years.
Reuters reported Monday that OPEC+ is now looking to cut oil production by more than one million barrels a day (bpd). Previous reports said the cut could be between half a million and a million but now they have hardened to ‘more than one million’.
That would be the biggest cut since 2020 when OPEC+ reduced output by a record 10 million bpd as demand crashed due to the COVID pandemic. The group spent the next two years unwinding those record cuts.
OPEC+, which combines OPEC countries with allies such as Russia, will looking to arrest the slide in global oil prices in the past month after their multi-year highs hit in March in the wake of the Russian invasion of Ukraine.
Brent crude lost more than 21% in the three months to September to close the quarter just over $US85 a barrel – back in March it peaked at $US139 a barrel in the wake of the Russian invasion.
US West Texas Intermediate crude dropped more than 24% in the quarter to end just under $US80 a barrel after a March peak of $US130.50.
Both crudes were more than $US120 a barrel in June and the sharp falls since then saw the OPEC+ group cut the size of its production cap reduction to a token 100,000 a barrel a day for October after agreeing to cuts around 400,000 barrels a day earlier in the year.
Media reports before last weekend said the group is focussing on a potential production cut of 500,000 barrels a day (bpd) to one million bpd to support the market but that seems to have hardened over the weekend and a bigger reduction in output is now forecast.
But a reduction that large might be academic. Though Russia and other producers are talking tough on a cut in production, the OPEC+ group has been producing well below its production quotas for more than a year now and yet prices have slid since June in spite of that shortfall.
Calmer conditions in bond and currency markets on Friday saw the prices of both oil types rise as the value of the US dollar fell (and other commodities).
The value of the UK pound for instance ended the week around $US1.11 after touching the all-time low of $US1.0327 on Monday.
The rise came as a direct result of the Bank of England intervening to buy long dated bonds which settled markets and eased the rapidly growing crisis on Wednesday morning.
Also helping boost prices was the disruption to US oil and gas production and distribution from Hurricane Ian with a 10% drop in output reported from the eastern US Gulf of Mexico fields.
European gas supplies remain confused with the sabotage to the two pipelines in the Baltic. Prices rose last week and will remain high heading towards winter.
Meanwhile US energy firms last week added oil and natural gas rigs for a third week in a row, but growth in the third quarter slowed noticeably as the previous confidence in the industry eased amid fears of a recession and weaker demand next year.
The oil and gas rig count rose one to 765 in the week to Friday, September 30, energy services firm Baker Hughes Co said in its weekly report.
That saw the total rig count up 237, or 45%, higher than this time last year.
US oil rigs rose two to 604 this week, while gas rigs fell one to 159.
For the month, drillers kept the number of rigs unchanged after cutting them in August.
In the third quarter, drillers added rigs for an eighth quarter in a row but the addition of 12 rigs but that was the smallest increase since the September 2020 quarter.
US production has been rising but slowly with latest government monthly data showing crude production rose 0.1% to 11.8 million barrels per day in July, the highest since April 2020, while gas output grew by 0.1 billion cubic feet per day (bcfd) to a record 109.6 bcfd in the month.
…………
September may now be behind us, but the pressures on gold and other metals remain.
Gold posted six months of consecutive losses up to the end of September- the last time something like that happened was in 2018, which marked the end of a bear market for gold and the turnaround that was helped in 2020 and then earlier this year by Covid and the Russian invasion of Ukraine.
The impact of the latter looked significant on paper but faded as fears of rapidly rising inflation took over, with central banks boosting interest rates at an unprecedented rate, especially the US Federal Reserve.
That in turn saw the value of the US dollar soar to multi-year highs against the yen, the euro (record high), sterling (record high, though for different reasons), 24-year highs against the yen and 14-year highs against China’s yuan (as the Chinese economy flatlined).
Key developments helping gold prices at the start of the final three months of 2022 are the contagion risk from the volatility in the UK financial markets and events in Ukraine where more military gains are exposing the extent of Vladimir Puton’s bluster and impotence.
Comex gold closed around $US1,662 an ounce for a loss of 7.8% for the quarter and 2.4% for the month.
Comex silver lost 6.5% for the quarter and ended just under $US19 an ounce and Comex copper fell 7.3% in the quarter to finish $US3.41 a pound on Friday.
Metal prices received a boost on Thursday with news the London Metal Exchange (LME) reportedly plans to ban metals from Russia from its warehouses but that faded.
Iron ore prices fell for the month and the quarter.
The SGX futures price for 62% Fe fines delivered to northern China ended at $US95.40 a tonne on Friday, down 5.2% for the month and 20% for the quarter (the price ended the June quarter at $US117.85 a tonne).
And thermal coal prices ended the week and quarter above $US400 a tonne. The Newcastle ICE thermal coal price rose 16% in the quarter and ended at $US412.70 after touching a high of $US443.86. The price was up just over 4% for the month of September.
And grain prices remain strong in Chicago, where wheat and corn traded around $US9.23 and $US6.78 cents a bushel respectively. Chicago wheat added 16% for September but only around 3.7% for the quarter. Chicago corn was up 3% for the month and nearly 9% for the quarter.
