Home Commodities OPEC says oil sell-off driven by “false signals” in markets

OPEC says oil sell-off driven by “false signals” in markets

by SuperiorInvest

OPEC said the recent oil sell-off was the result of “wrong signals” as the cartel played down forecasts that slowing economic growth and tightening monetary policy would weigh on global oil demand through 2023.

The fundamentals of the oil market “have not changed”, the producer group argued, but hedge funds and other money managers continued to place bets on rising prices in the two main oil futures contracts “amid the market narrative of a deteriorating economic and demand outlook”.

“Paper and physical markets are increasingly disconnected,” the cartel said in its monthly oil report on Tuesday. “This creates a yo-yo type of market and sends the wrong signals at a time when greater visibility, clarity and well-functioning markets are needed more than ever.”

The cartel’s comments echoed those recently made by Saudi Arabia, the group’s de facto leader, ahead of the last OPEC meeting in September, when it agreed to cut supply by 100,000 barrels a day from October.

While “volatility and poor liquidity [was] sending the wrong signals” to oil markets, Opec+, a group that includes the cartel and other major producers such as Russia, had the means to deal with the problem, “including cutting production at any time,” Saudi Energy Minister Abdulaziz bin Salman said in August. .

Brent crude, the international benchmark, closed August at $96.49 a barrel, having hit a peak of nearly $140 earlier in 2022. Prices fell again last week, falling below $90 a barrel for the first time since Russia invaded Ukraine in February. West Texas Intermediate, the US benchmark, fell to a low of just above $81 a barrel last week, the lowest since January.

The drop was due to “strong sell-offs in futures markets, which are increasing market volatility,” OPEC argued in a report on Tuesday.

Participants in the main Brent and WTI crude oil futures markets, ICE and NYMEX respectively, were net sellers of around 104 million barrels in the third week of August compared to the last week of July.

Despite the sell-off, Opec kept its oil demand forecast for 2022 and 2023 unchanged from last month.

Global oil demand was expected to grow by a “healthy” 3.1 million bpd in 2022 and another 2.7 million bpd in 2023.

“Oil demand in 2023 is expected to be supported by continued solid economic performance in major consuming countries, as well as potential improvements in Covid-19 containment and reduced geopolitical uncertainties,” the company said.

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