SINGAPORE, Oct 6 (Reuters) - Oil prices saw an increase of approximately 1.5% on Monday following OPEC+'s announcement of a more modest monthly production increase than anticipated. This decision has alleviated some concerns regarding potential supply additions. However, analysts suggest that the near-term gains in oil prices may be limited due to a softer demand outlook.
Brent crude futures climbed by 91 cents, translating to a 1.4% rise, reaching $65.44 a barrel by 0315 GMT. Similarly, U.S. West Texas Intermediate crude increased by 89 cents, or 1.5%, bringing the price to $61.77. The recent price surge is largely attributed to OPEC+'s decision to implement a lower-than-expected production hike for the upcoming month. Independent analyst Tina Teng highlighted that this move aims to cushion the oil markets against recent downturns.
On Sunday, the Organization of the Petroleum Exporting Countries (OPEC) along with Russia and several smaller producers declared an increase in production starting November by 137,000 barrels per day (bpd). This decision mirrors the modest monthly increase established for October, amidst ongoing worries about a looming supply glut.
Prior to the meeting, reports indicated that Russia was pushing for the proposed output increase of 137,000 bpd to stabilize prices. In contrast, Saudi Arabia was advocating for a significantly larger increment to regain market share more rapidly. Despite these differing perspectives, OPEC+'s decision appears manageable given the rising supply disruptions caused by tightening sanctions from the U.S. and Europe on Russia and Iran, as noted by ANZ analysts in a recent report.
Compounding the situation, Ukraine has intensified its military operations against Russian energy facilities, including targeting the Kirishi refinery, which is one of Russia's largest, boasting an annual processing capacity exceeding 20 million tonnes. This ongoing conflict adds another layer of uncertainty to the oil market.
Additionally, the finance ministers of the Group of Seven nations recently announced plans to heighten pressure on Russia by targeting entities that continue to purchase Russian oil and those facilitating sanctions evasion. This measure is part of a broader strategy to cut off funding to Russia amid its ongoing invasion of Ukraine.
Despite OPEC+'s efforts, analysts predict that weak demand fundamentals in the fourth quarter will likely limit any potential price increases. Priyanka Sachdeva, a senior market analyst at Phillip Nova, stated that the absence of fresh bullish catalysts, combined with an ambiguous demand outlook, indicates that oil prices may remain capped, even in light of OPEC+'s smaller-than-expected output hike.
As the market transitions towards a potential oversupply scenario, seasonal demand is anticipated to decline as winter approaches. Furthermore, macroeconomic data offers little upside support for pricing. The global refinery maintenance season, which typically begins this month, is expected to further suppress demand. Analysts at BMI noted that as this shoulder season advances, a ramp-up in refinery maintenance could lead to a significant surplus, potentially triggering a selloff in oil prices.
In summary, while oil prices may have seen a short-term boost from OPEC+'s production decision, the combination of geopolitical tensions, weak demand forecasts, and seasonal maintenance activities suggests a complicated landscape for the oil market in the coming months.
