Market demand exceeds supply and inventory declines, U.S. oil rose nearly 11% in October

On Friday (October 29), US oil futures rose 0.76 US dollars, or 0.9%, to a settlement price of 83.57 US dollars. Burundi oil was flat, closing at US$84.38 per barrel, a cumulative increase of 6.6% this month. The two major crude oil indicators both fell by more than 1% earlier. After the market expected the OPEC+ alliance to maintain production at a low level, oil prices reversed the downward trend. At the same time, there are signs that consumption has exceeded supply and caused inventories to continue to fall. U.S. oil has risen by 11% this month.

Earlier EIA data showed that as of the week of October 22, the utilization rate of refinery equipment was 85.1%, compared with the previous value of 84.7. Rising oil refining margins indicate that crude oil consumption will remain strong, as refiners will continue to increase processing capacity to meet demand, which also means that global oil inventories may continue to decrease in the coming months.

Traders are also continuing to evaluate the possibility of OPEC and its allies to further increase production. The OPEC+ Alliance will meet on November 4 to evaluate plans to gradually restore production that was suspended during the epidemic.

The energy agency Argus said that demand concerns have offset the pressure to increase production, and OPEC+ is likely to agree at its November meeting to increase production by 400,000 barrels per day in December. Several OPEC+ representatives told Argus that OPEC+ may confirm a total increase of 400,000 barrels per day in December production, and one representative expressed interest in further increasing production. The pressure on oil-producing countries to increase production is increasing, but the primary consideration for OPEC+ is to worry about the impact of the new wave of epidemics on demand. Some representatives attributed the recent surge in global prices to the effects of coal and natural gas shortages. Analysts estimate that the conversion of natural gas to oil this winter may increase fuel consumption by 500,000 to 1 million barrels per day.

Ed Moya, senior market analyst at Oanda Corp., said that the gap in the oil market may be smaller than traders initially thought, but it will not disappear anytime soon. If OPEC+ continues to increase production gradually, crude oil prices may resume their upward momentum. Although there may be more supplies from Iran entering the market, it seems that OPEC+ is unlikely to increase production, which will boost the market today.

Now, as inflation accelerates pushing some central banks to raise interest rates earlier than expected, oil-consuming countries are putting the toughest diplomatic pressure on OPEC+ in years. According to a number of diplomats and industry insiders, oil-consuming countries discussed privately to take action to persuade OPEC+ to increase production. The organization currently plans to increase production by 400,000 barrels per day per month. In public, the efforts of various countries are also obvious. US gasoline prices have risen to a seven-year high, and the Biden administration has continued to call for OPEC+ to increase production for several weeks. Japan, the world's fourth largest oil consumer, also rarely made proposals to increase production at the end of October. India, the third largest oil consumer, is demanding an increase in crude oil supply. American Chief Energy Diplomat Amos Hochstein said this week that we find ourselves in an energy crisis and that producing countries should ensure that the oil field and natural gas market are in balance between supply and demand.

So far, Saudi Arabia and other countries have refused to speed up production, saying that an increase of 400,000 barrels per month in daily production is sufficient to meet the global economic demand for oil. Saudi Energy Minister Abdulaziz bin Salman said last week that we are not out of the predicament yet and we need to be careful. The crisis has been brought under control, but it is not necessarily over. His remarks were echoed by other members of OPEC+ both in private and in public. Parviz Shahbazov, Minister of Energy of Azerbaijan, said that there is no need to rush to increase production. We have reached a very wise and smart plan for the production policy in the next few months. Several OPEC+ anonymous representatives said that if Saudi Arabia takes the lead, some countries are open to speeding up production.

(U.S. Oil Hour Chart)