Crude oil price erased its previous gains on Tuesday amid the persistent bearish demand outlook. As at the time of writing, Brent futures were down by 2.63% at $92.65. In addition to concerns over the health of the Chinese economy, OPEC+ appears to be closely watching the commodity’s global demand. This is evident in its Monday’s decision to cut output by 100,000 bpd in October. Based on the fundamental indicators, Brent oil will likely remain above $90 in the short term.
What’s driving the market?
OPEC’s supply cuts
In recent years, OPEC+ has been keen on maintaining the crude oil demand/supply balance to avoid a plunge similar to the one recorded two years ago at the peak of the coronavirus pandemic. In its meeting on Monday, the coalition agreed to reduce their output in October by 100,000 barrels per day. The surprise move places their production back to August’s levels. The alliance seeks to boost crude oil price amid concerns that slow global economic growth may yield demand destruction.
Granted, the supply cut is rather insignificant as it reverses September’s production increase. Even so, it is a clear sign that OPEC+ is keenly watching crude oil price movements and will act accordingly in coming months.
Europe’s energy crisis
The recent rallying in crude oil price comes at a time when the energy crisis in Europe has deepened further. Late last week, Russia’s state-run gas company – Gazprom – announced that gas flows to the continent through the critical Nord Stream pipeline will not resume after the expected three days of maintenance.
Subsequently, the benchmark Dutch TTF futures rose by about 35% on Monday. While the region has been keen on filling their storage facilities, concerns remain on how it will replace Russian supplies. Seeing that crude oil is one of the main alternatives to natural gas, the energy crisis in Europe will likely remain a bullish driver for crude oil price in the ensuing sessions. This as traders await the Friday’s emergency meeting for energy ministers in the region.