Oil bounces off 10-month low after Saudi Arabia denies report on Opec supply boost

Oil prices rebounded from a 10-month low on Monday after Saudi Arabia “categorically” denied a report that Opec was weighing an increase in output that would help to counteract the loss of Russian supplies.

Brent crude, the international benchmark, slid as much as 6 per cent to $82.79 a barrel, before trimming its fall to 2 per cent, to trade at $85.95. West Texas Intermediate, the US marker, was down by a similar margin, but later cut its losses to trade down about 2 per cent at $78.50.

The prices for each benchmark reached their lowest level on an intraday basis since January, before Russia’s invasion of Ukraine disrupted global crude markets and sent prices soaring.

The volatility came after the Wall Street Journal reported that Saudi Arabia and other Opec producers were discussing a production increase of up to 500,000 barrels a day for when the group meets in Vienna on December 4. Saudi Arabia, the group’s de facto leader, later said it was “well known” that the cartel did not discuss “any decisions ahead of its meetings”.

Any increase in output would loosen the market after the Opec+ group, including the cartel and allies such as Russia, said in October they were cutting production targets by 2mn b/d to support prices — a move that enraged Washington, which accused the cartel of “aligning” with Russia and damaging the global economy.

It would also come a day before the EU is set to introduce an embargo on Russian oil shipments and plans for G7 countries to cap the price of Russian crude.

“The current cut of 2 million barrels per day by Opec+ continues until the end of 2023 and if there is a need to take further measures by reducing production to balance supply and demand, we always remain ready to intervene,” Saudi energy minister, Prince Abdulaziz bin Salman, said in a statement.

The IEA has warned that these major market interventions could create huge uncertainty for the direction of prices.

Mark Haefele, chief investment officer at UBS Global Wealth Management, nonetheless expected Brent crude prices to return to $110 a barrel in 2023 as supply tightened and demand continued to rise.

“Opec is scaling back its production this month, with crude exports so far in November down more than 2mn barrels per day versus October,” Haefele said. The upcoming European ban on Russian crude could also limit output.

In equity markets, Wall Street’s benchmark S&P 500 fell 0.6 per cent in early-afternoon trading, while the tech-heavy Nasdaq Composite dropped 1.1 per cent. In Europe the regional Stoxx Europe 600 dipped 0.1 per cent and London’s FTSE 100 gave up its gains to trade down 0.2 per cent.

The US dollar index, which tracks the currency against six others, added 1 per cent on Monday, extending last week’s rally, though the greenback remains down about 3 per cent for November.

Speculation that the greenback might have peaked in late September had been fuelled by October’s lower than expected US inflation figure and hopes that China may be about to relax its zero-Covid stance.

Investors were less optimistic on the latter this week, however, after provincial capitals Shijiazhuang and Guangzhou rolled out tougher Covid controls to limit cases. Hong Kong’s chief executive John Lee, meanwhile, tested positive just days after interacting with President Xi Jinping at the Asia-Pacific Economic Cooperation forum in Bangkok.

“The reopening rally [in China] was played way too quickly, that’s not going to come until the second quarter [of 2023] at least,” said Paul O’Connor, head of the UK-based multi-asset team at Janus Henderson. “China was an important catalyst for rallies in the past few weeks, but investors are questioning whether they’ve been too optimistic.”

Hong Kong’s Hang Seng index fell 1.9 per cent, while China’s CSI 300 edged lower by 0.9 per cent. Elsewhere, Japan’s Topix rose 0.3 per cent and South Korea’s Kospi shed 1 per cent.