Oil prices rebound as recovery of crude exports counter Russia's supply cut

Oil prices rebounded from early losses on Monday as the return of oil exports out of Turkey calmed immediate concerns over a looming cut in Russian supply.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.60 per cent higher at $86.91 a barrel at 10.14pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 1.08 per cent at $80.58 a barrel.

Prices fell in morning trading on Monday as demand concerns offset prospects of a Russian supply cut.

On Friday, Brent settled 2.24 per cent higher at $86.39 a barrel and WTI was up 2.13 per cent at $79.72, their biggest gains in four months, amid prospects of further tightening of the market.

But “gains remain limited by an overall bearish mood and recession fears”, said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

Global economic growth may be reaching a “turning point”, supported by falling inflation and China’s reopening, International Monetary Fund managing director Kristalina Georgieva said on Sunday.

The fund raised its global economic growth estimate for this year by 0.2 percentage points to 2.9 per cent from its October forecast, a slowdown from the 3.4 per cent expansion in 2022.

“While this is encouraging, the balance of risks remains tilted to the downside. China’s recovery could stall [and] inflation could remain higher than expected,” Ms Georgieva told the Arab Fiscal Forum in Dubai.

“Russia’s war in Ukraine could escalate, causing further fragmentation of the global economy.”

Russia, the world’s second-largest oil producer after Saudi Arabia, said it would cut oil production by 500,000 barrels per day, or about 5 per cent of its crude output, in March after the West imposed price caps on Russian crude and oil products.

On February 5, the G7 and the EU agreed to set the price cap at $100 a barrel for products that trade at a premium to crude, such as diesel, and $45 a barrel for products that trade at a discount, such as naphtha and fuel oil.

The price cap was introduced along with an EU ban on Russian diesel and other refined products.

“The rest of the Opec+ producers’ alliance has reportedly indicated they will not change production plans to compensate for the decline in Russian output,” Jeanne Walters, senior economist at Emirates NBD, said in a research note on Monday.

At its meeting on February 1, the Opec+ alliance of 23 oil-producing countries agreed to roll over existing output cuts of 2 million bpd.

Futures gained more than 8 per cent last week on optimism about China’s economic recovery and the closure of a key oil export terminal in Turkey.

Opec expects global oil demand to exceed pre-pandemic levels in 2023, Haitham Al Ghais, the group’s secretary general, said at an event on Sunday.

“Short-term momentum from China, no more SPR [strategic petroleum reserve] support and Russia’s lower output should support Brent crude to make a move towards the $90 level,” Edward Moya, a senior market analyst at Oanda, said in a research note on Friday.

Last week, Goldman Sachs lowered its Brent price estimate this year by $5 a barrel and said it expected prices to rise gradually to $100 a barrel by December.

A 1.1 million bpd rise in China demand this year should push oil markets back into a “deficit” in June, and lead Opec+ to reverse its production cuts, the investment bank said.

US shale will register “moderate” growth in 2023, given tight labour and equipment markets, mixed production forecasts and a falling rig count, Goldman Sachs said.