The Commodities Feed: OPEC struggling | Snap


The oil market has held up relatively well when considering the deteriorating macroeconomic picture. Data released on Friday saw the US ISM manufacturing index come in below expectations for June, while new orders fell into contraction territory, which is not a great sign for production over 2H22. Despite this, ICE Brent still managed to settle almost 2.4% higher on Friday, which also saw the market settle higher over the week. Constructive oil fundamentals continue to counter the weakening macro environment at the moment. The prompt ICE Brent spread continues to point towards a tight market, with the Sep/Oct spread trading as high as US$3.89/bbl on Friday.

A key factor behind the constructive view of the oil market is the inability of OPEC to significantly increase output. In fact, according to Bloomberg numbers OPEC production fell by 120Mbbls/d MoM in June to average 28.6MMbbls/d. If we look at just the OPEC members who are part of the OPEC+ pact, output totaled just 24.67MMbbls/d in June,  around 1.2MMbbls/d below the agreed production level for the month. All producers with the exception of the UAE and Gabon failed to hit their agreed production levels. The failure of the group to hit these more modest supply increases makes it fairly clear that they will not get anywhere close to the more aggressive supply increases for July and August, and so the gap between where they are producing and where they should be producing will only widen. Not helping overall OPEC production are the continued disruptions from Libya, with output falling by 90Mbbls/d over the month to 670Mbbls/d, the lowest level since October 2020.

The latest positioning data shows that speculators reduced their net long in ICE Brent by 11,689 lots over the last reporting week, leaving them with a net long of 197,199 lots as of last Tuesday. This move was predominantly driven by longs liquidating. Given growing fears of a recession, it appears that speculators are taking some risk off the table at the moment, despite the supportive fundamentals.

Concerns over Russian gas flows to Europe have continued to prove constructive for European natural gas prices. TTF rallied 15% over the course of last week, to settle close to EUR148/MWh. Nord Stream daily flows remain about 60% below levels seen over May. These flows will come to a complete stop between 11-21 July, as the Nord Stream pipeline undergoes its usual annual maintenance. In addition, there are supply risks from Norway, where strike action is set to start. Three fields – Gudrun, Oseberg South and Oseberg East – are set to shut on 5 July due to industrial action. These strikes are set to expand to a further three fields on 6 July. As a result of this action, around 13% of Norway’s daily gas exports will be lost.

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