Oil gains as OPEC delays production hikes
Daniel Hynes
Senior Commodity Strategist | helping investors and companies navigate macro, political, economic & environmental issues
Highlights
Energy markets were higher as supply side moves offset demand concerns. A weaker USD also added to support across the broader commodity complex.
Prices and commentary accurate as of 07:00 Sydney/05:00 Singapore/17:00(-1d) New York/22:00(-1d) London.
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Market Commentary
Crude oil edged higher as bullish signals offset the bearish sentiment that has gripped the market in recent days. OPEC’s website announced the group will postpone its production hikes by two months. Instead of raising output by 180kb/d in October, it will start the phase out of the voluntary production cuts in December. However, the completion date that the entire 2.2mb/d will be brought back onto the market remains unchanged at December 2025. This was not surprising, considering the pressure oil prices have been under in recent months. This could also signal that the broader group is still struggling to comply with the agreed mandatory production cuts. Iraq, Russia and Kazakhstan have dragged their heels on implementing their share of curbs. It should also de-risk the chance that the oil market moves into a surplus in the fourth quarter. However, it’s unlikely to completely ease concerns in the market that have centred on weak demand in 2025. Data showing US inventories shrank by 6.87mbbl last week also supported sentiment. Energy Information Administration data showed inventories at the WTI pricing point at Cushing fell 1,142kbbl.
Global gas prices edged higher as traders weighed ample near-term supply against winter risks. European gas futures gained after the industry group INES warned that it is still possible that German gas storage facilities could run dry if the country experiences a colder than normal winter. The region is already facing the possibility of diminishing gas supplies from Russia. Ukraine stated it has no intention of renewing a deal that allowed Russian gas to pass through its country onto Europe. Russia’s dependence on that revenue has seen President Putin express his desire to continue sending gas to Europe via this route. Several days of price weakness induced interest from Indian buyers in the North Asian LNG market, as pressure mounts to reduce emissions from its power industry. Its electricity consumption is growing at the fastest rate of any major economy, but it has struggled to build enough solar and wind generation to meet these needs.
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Iron ore sank to its lowest level since 2022 as China’s main steel industry group advised mill should be cautious boosting output too quickly. The China Iron & Steel Association estimates there will be a certain degree of recovery in steel demand through September and October, but it needs to be cautious of the impulse to restart production. Iron ore futures in Singapore threaten to push below USD90/t during the session and are now down by about 10% this week as concerns over demand mount.
Copper steadied due to buying by industrial users following heavy selling earlier in the week, but the modest gains were capped by worries about the prospect of weaker global economic growth dampening demand for industrial metals. A slightly weaker USD also helped boost investor appetite. The rest of the complex headed lower as concerns about the Chinese economy deepened after data showed growth in services sector activity slowed in August.
Chart of the Day
Chinese steel output has remained elevated, going against normal trends lower.