Downward pressure on oil has continued, with ICE Brent closing more than 5% lower yesterday, and crucially below the US$40/bbl level. There was no clear catalyst for the move, however, a stronger USD and weaker equities would have done little to help sentiment, not just for oil, but the broader commodities complex. Looking at fundamentals, and while stalling demand has been a concern for most in the market for a while, it is becoming more evident. Time spreads continue to edge deeper into contango, while the physical market is weaker - over the last few days we have had both Aramco from Saudi Arabia and Adnoc from the UAE cutting official selling prices for their crude oil. Both of their flagship grades are now at discounts to their benchmark, which is not a great signal for demand. On the supply side, with OPEC+ easing cuts we are seeing oil supply growing. Looking just at OPEC, output from the group has grown by around 1.5MMbbls/d since June, and obviously, if you factor in the “+” members, such as Russia, supply growth would be even stronger, with Russian oil supply having grown by around 500Mbbls/d over the same period. If this downward pressure on the market continues, OPEC+ will become increasingly concerned, and there is always the potential that the group look to re-implement the deeper cuts that we saw between May and July. The OPEC+ Joint Ministerial Monitoring Committee are scheduled to meet on the 17th September, so be ready for plenty of noise in the lead up to and around the meeting on what the group may or may not do.
