A late PS - the oil price has now dropped back, with Brent crude sliding back below $100 per barrel.
Brent lost its earlier recovery, after the latest US oil inventory figures showed a surprise rise in stocks last week (suggesting lower demand than expected).
Victoria Scholar, head of investment at Interactive Investor, tells us what’s going on:
Oil prices are trading sharply lower by around 2% as Brent crude approaches critical near-term support at $98 a barrel. OPEC+ decided on a minimal output increase of 100,000 in barrels per day, with the slight supply increase catalysing the move lower. It is understood that Saudi Arabia and the UAE are the only producers actually able to raise their oil production.
On top of that data from the EIA saw that US crude stocks unexpectedly rose by 426.55 million barrels last week, versus expectations for a draw of 600,000. This echoed what we saw yesterday in terms of the latest API figures, surprising analysts with a build for crude oil versus expectations for a draw. There was already nervous price action this morning with brent crude breaking below $100 a barrel with OPEC+’s decision reinforcing the bearish move lower.
After peaking in March this year with the war in Ukraine exacerbating existing oil price inflation, prices have started to retreat from the highs with Brent crude back in double digit territory.
Closing summary
A quick recap
The Opec group of oil producers has defied pressure to significantly increase oil production.
Despite president Joe Biden’s trip to Saudi Arabia last month, the cartel only agreed to increase output by 100,000 barrels per day in September.
It’s one of the smallest increases in its history, equivalent to around a minute-and-a-half of daily demand.
Analysts said the move was a rebuff to Western pressure... although also pointed out that some Opec members were struggling to meet existing production goals anyway.
Randeep Somel, manager of the M&G Climate Solutions Fund, says Joe Biden’s fist bump with Mohammed bin Salman has only delivered a “miniscule OPEC+ production increase”.
Somel adds:
“It doesn’t look as if higher oil prices are going to be resolved by a supply response. The key factor now will be how resilient the global economy can be with higher oil prices and if inflation can be tamed despite energy prices remaining high.
Otherwise the only option central banks will have is to raise interest rates in order to curtail demand.”
Tight energy markets will continue to squeeze households, with a warning today that UK consumer price inflation could hit 15% early next year.
Rising prices and weakening growth leaves the UK at risk of stagflation, the NIESR thinktank warned this morning.
It predicts the UK will enter a recession this quarter - which will last until the first quarter of 2023 -- pushing up unemployment, and widening economic inequality within the country.
The government is facing growing calls to provide more support for struggling households.
Charities warned that renters whose utility bills are included in their rent are at the mercy of their landlords and could miss out on the UK government’s existing £400 energy discount.
Drivers are still being squeezed too, with a warning that large petrol retailers were too slow to pass on falling wholesale petrol prices.
French energy provided EDF is also strugging in the hot weather, warning that it may need to turn down nuclear output as river temperatures rise, making it harder to cool reactors.
Elsewhere today....
The global management consultancy Bain & Company has been barred from tendering for UK government contracts for three years after its “grave professional misconduct” in state corruption in South Africa, the Cabinet Office said.
The chief executive of Tinder has left the dating app after less than a year after the market value of its parent company plunged by more than a fifth following reporting disappointing results.
Adverts for two funeral providers have been banned after they misleadingly implied that their MDF coffins were more eco-friendly than other options.
