Opec has said the recent oil sell-off is the result of “erroneous signals” as the cartel pushes back against predictions that slowing economic growth and monetary policy tightening will weigh on global crude demand into 2023.
Oil market fundamentals were “unchanged”, the producer group argued, yet hedge funds and other money managers had continued to close out bets on rising prices in the two major oil futures contracts “amid a market narrative of worsening economic and demand outlook”.
“The paper and physical markets have become increasingly more disconnected,” the cartel said in its monthly oil report on Tuesday. “This is creating a type of yo-yo market and sending erroneous signals at times when greater visibility and clarity and well-functioning markets are needed more than ever.”
The cartel’s comments echoed those made recently by Saudi Arabia, the group’s de facto leader, ahead of the last Opec meeting in September when it agreed to cut supply by 100,000 barrels a day from October.
While “volatility and thin liquidity [was] sending erroneous signals” to oil markets, Opec+, the group that includes the cartel and other big producers such as Russia, had the means to deal with the problem, “including cutting production at any time”, Saudi energy minister Abdulaziz bin Salman said in August.
Brent crude, the international benchmark, closed August at $96.49 a barrel, having reached a high of almost $140 earlier in 2022. Prices dropped again last week, falling below $90 a barrel for the first time since February when Russia invaded Ukraine. West Texas Intermediate, the US marker, dropped to a low of just over $81 a barrel last week, its lowest level since January.
The decline had been driven by “heavy sell-offs in futures markets elevating market volatility”, Opec argued in Tuesday’s report.
Participants in major oil futures markets for Brent and WTI, respectively ICE and NYMEX, were net sellers of about 104mn barrels in the third week of August compared with the last week of July, it said.
Despite the sell-off, Opec kept its oil demand forecast for 2022 and 2023 unchanged from last month.
Global oil demand was expected to grow by a “healthy” 3.1mn barrels per day in 2022 and by a further 2.7mn b/d in 2023.
“Oil demand in 2023 is expected to be supported by a still solid economic performance in major consuming countries, as well as potential improvements in Covid-19 restrictions and reduced geopolitical uncertainties,” it said.