Oil records weekly decline on concerns of supply boost

Oil prices recovered some losses on Friday but recorded a weekly decline as the market braced for the prospect of an increase in crude supply from Saudi Arabia and Libya.

Brent, the benchmark for two thirds of the world's oil, was up 0.53 per cent to settle at $71.98 a barrel. West Texas Intermediate, the gauge that tracks US crude, rose 0.75 per cent to close at $68.18 a barrel.

Crude prices slid more than 2 per cent on Thursday after it was reported that Saudi Arabia, the world's biggest oil-producing country, plans to increase its oil production.

Officials in the kingdom were said to be “committed to bringing back that production as planned on December 1, even if it leads to a prolonged period of lower prices”, the Financial Times reported on Thursday, citing officials.

Saudi Arabia and seven other Opec+ members were set to ease voluntary production cuts of 2.2 million barrels per day starting next month. However, the supply curbs were extended until the end of November amid a drop in crude prices and slumping global demand.

"If Saudi [Arabia] starts pumping, the others [in Opec] must follow to increase their revenue, as well. And that’s outright bearish for oil prices, also provided that the non-Opec countries are pumping abundantly as well," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Libya, meanwhile, is seen to revive crude production after an agreement between rival political factions in its eastern and western regions saw the appointment of Naji Issa as its new central bank governor on Thursday.

The move is expected to end a month-long oil shutdown within days. The eastern-based government of the Opec member has also pledged to reopen the country’s oilfields shortly, United Nations envoy Stephanie Koury said on Thursday.

The oil market also continues to grapple with China's economic situation, as the world's second-largest consumer of crude continues to face headwinds on the back of weak oil demand and a tepid manufacturing sector.

China this week unveiled its most aggressive stimulus package since the Covid-19 pandemic, offering more interest rate cuts and funding, especially for its spiralling real estate market, in a bid to boost the world's second-largest economy.

"Oil is in trouble. Notwithstanding demand-side support from China’s credit bazooka, higher supply is coming into sharp focus," analysts at MUFG said, noting that the Saudi and Libyan developments, "as well as de-escalatory rhetoric from Iran amid a flare-up in geopolitical tensions in the Middle East, are collectively pushing Brent to the low $70-per-barrel handle".

Tokyo-based MUFG, however, is sticking to a "constructive" Brent price of $84 per barrel in the fourth quarter, owing to "tightening in the physical market alongside a normalisation in the paper market, driving prices higher into year-end".

Emirates NBD, Dubai's biggest bank by assets, projects that the oil market will face another year of soft demand in 2025, as major economies record weaker headline growth and structural factors like a growing electric vehicle fleet eat into demand.

Brent and WTI are expected to average $73 and $71 a barrel, respectively, in 2025, which would be an annual drop of about 9 per cent and 7 per cent, and swing to a surplus even if Opec+ were to delay returning output, said Edward Bell, head of market economics at Emirates NBD Research.

"Opec+ has run out of room to add barrels back to the market with limited price impact as demand ebbs and non-Opec+ supply continues to grow. Opec+ members are likely to doubt the effectiveness of restraining production if it means market share is eroded with no parallel support for prices," he said.

On Tuesday, Opec raised its medium and long-term forecasts for world oil demand, which calls for the market to grow for a longer period compared to other forecasts such as those from BP and the International Energy Agency, which expect oil use to peak this decade.

Opec expects world oil demand to reach 118.9 million barrels per day by 2045, about 2.9 million bpd higher than expected in last year's report. The report detailed its timeline to 2050 and expects demand to hit 120.1 million bpd by then.

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