Oil prices set for weekly loss on prospect of increased supply

By Myra P. Saefong and William Watts

Natural-gas futures trade more than 5% higher for the week

Oil futures edged higher in Friday dealings but remained on track for a weekly loss on expectations OPEC+ will boost production before year-end, as investors cast doubt on whether an aggressive round of monetary stimulus from China will shore up demand from the world's largest crude importer.

Price moves

West Texas Intermediate crude CL00 for November delivery CL.1 CLX24 added 23 cents, or 0.3%, to $67.90 a barrel on the New York Mercantile Exchange. It's on track for a weekly drop of 4.4% following two consecutive weekly gains.November Brent crude BRNX24, the global benchmark, was down 10 cents, or 0.2%, at $71.50 a barrel on ICE Futures Europe, with prices down 4% for the week. The more actively traded December contract BRN00 BRNZ24 shed 7 cents, or 0.1%, to $71.02 a barrel.October gasoline fell 0.3% to $1.955 a gallon, trading 4% lower on the week, while October heating oil HOV24 lost 0.2% to $2.1329 a gallon, trading 1.3% lower for the week.Natural gas for November delivery NGX24 traded at $2.87 per million British thermal units, up 4.1% for the session - contributing to a weekly gain of 5.4%.

Market drivers

Crude oil was consolidating after a Thursday selloff that followed a Financial Times report, citing people familiar with Saudi officials' thinking, which said the kingdom was ready to throw in the towel on voluntary production cuts in December in a bid to reclaim market share.

Saudi Arabia and seven other members of OPEC+ - made up of the Organization of the Petroleum Exporting Countries and its Russia-led allies - had been set to begin unwinding some production cuts in October, but previously agreed to delay the move until December.

Fundamentally, the expected increase in production "could not come at a worse time," analysts at Sevens Report Research wrote in Friday's newsletter. Demand expectations have "faltered with recently volatile economic data and growing uncertainty about a recession, despite the factthat markets are tentatively penciling in a soft landing" for the second half of this year.

The current 2024 low close for WTI of just over $66 a barrel will "remain a key technical level to watch near term as any negative news regarding the health of the economy has the potential to put more pressure on oil," they said.

Attention will shift to a meeting of the OPEC+ Joint Ministerial Monitoring Committee next week, though it's unlikely to result in any major announcements, Helima Croft, head of commodity research at RBC Capital Markets, said in a note. She argued that the "direction of travel" is likely to depend on whether Iraq and Kazakhstan, which have overproduced, bring production back in line with assigned cuts.

"If these two producers make visible curtailments, we think Saudi Arabia and its regional partners will stick with the slow phase-in announced in June. However, if they fail to comply, we can envision a swifter sunsetting of the voluntary cuts," she said.

Phil Flynn, senior market analyst at the Price Futures Group, said that OPEC overproducers are "reigning in overproduction and making good on promises to make compensation cuts on previous overproduction in the past."

So for Saudi Arabia to "start a production war now would be like punting on third down on the goal line. It would not make any sense," he said in his daily energy report. Yes, there will be an increase in production in December, but "as former OPEC cheaters make compensation cuts the increase will only reflect the seasonal uptick in oil demand and not substantially build global oil inventories."

Flynn said the net increase in output might only be about 300,000 to 500,000 barrels a day, and that "should keep us in a supply deficit and would not lead to any increase in global oil inventories."

-Myra P. Saefong -William Watts

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09-27-24 1040ET

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