Oil declines on hopes of easing regional tensions

Three sources familiar with the matter told Reuters that OPEC+ countries are likely to keep their oil production targets unchanged for December at their meeting scheduled for next Sunday, aligning with expectations that no further adjustments to production policy will be made before next year.

The meeting will be held online with participation from seven key alliance members: Saudi Arabia, Russia, Iraq, Kuwait, Algeria, Kazakhstan, and Oman. This comes as Gulf countries work to boost exports that were disrupted for months due to the Iran war, although most are still producing significantly below their production quotas.

The three sources requested anonymity, emphasizing that no final decision has been made yet.

OPEC+ comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia. Neither OPEC nor Russian authorities have responded to requests for comment.

OPEC+ completed its gradual rollback of production cuts totaling 1.65 million barrels per day, which were first agreed upon in 2023, in September. Disruptions caused by the Iran war have led Gulf countries to produce below their allocated quotas.

Reuters reported in July that OPEC+ was unlikely to make any changes to its targets during the fourth quarter, as the alliance shifts its focus to negotiations on quotas for 2027.

The alliance continues to apply a second round of production cuts, totaling approximately 2 million barrels per day, covering most member countries and lasting until the end of 2026.

Sources say OPEC+ must complete a review of member countries’ production capacities before determining baseline production levels for 2027, which will be used to set future quotas and formulate plans to end these cuts.

The price of a barrel of Kuwaiti crude fell by $1.41 to $112.68 per barrel in yesterday’s trading, compared to $114.09 on Friday, according to the price announced by the Kuwait Petroleum Corporation.

In global markets, oil prices fell by about one percent this morning, as fears about supplies eased, supported by ongoing negotiations with Iran, which have renewed hopes for a potential breakthrough in talks between the United States and Iran, despite continued Houthi attacks on Saudi Arabia.

Brent crude futures dropped by $1, or 0.86 percent, to $114.81 per barrel by 0418 GMT, while US West Texas Intermediate crude fell by 88 cents, or 0.86 percent, to $100.88 per barrel. Both had previously declined by 1 percent earlier in the session.

Saudi Arabia, Turkey, and Pakistan held talks with Iranian officials in Tehran yesterday aimed at easing tensions in the Middle East.

Sujanda Sachdeva, founder of SS Wealth Street, a research firm based in New Delhi, said: “Crude oil prices are seeing profit-taking after rising to multi-month highs, as renewed diplomatic efforts in West Asia have revived hopes for a potential breakthrough in US-Iran negotiations.”

Last week, Brent crude prices surged above $117 per barrel, their highest level since April, following a wave of Iranian attacks on oil tankers near the Strait of Hormuz. Brent also touched $117 yesterday.

However, declines remain limited given the fragility of peace prospects, as Houthi attacks on Saudi Arabia, the leading oil producer, continue.

Data compiled by a Washington-based research center that has been tracking maritime security incidents worldwide since 2017 showed that October was the worst month for attacks on commercial ships in the Strait of Hormuz and adjacent waterways.

The war has cast a shadow over the Middle East, placing the Strait of Hormuz at the epicenter of the turmoil. This narrow waterway previously carried about one-fifth of global energy supplies before the conflict erupted last February.

In a note, ANZ Research stated that the oil market is exposed to volatility, with pressures in several areas such as supplies, logistics, inventories, and refining.

The note added that crude oil exports from the Gulf fell for the fourth consecutive week, and flows through the Strait of Hormuz recorded only about 60 percent of their normal level, while global distillate inventories remained about five percent below their five-year average.

It pointed out that the most direct impact of the situation in the Middle East is the rise in logistics costs, while the company found ways to overcome disruptions to its own supply chains.

The company clarified in August that the conflict in the Middle East is disrupting sales and deliveries in key Gulf markets, highlighting how consumer goods companies operating in the region are affected by ongoing geopolitical tensions.

India is preparing to boost its diesel exports next year as new refining capacities come online, a move that could ease global supply shortages and support markets facing fuel deficits, from the United States to Europe.

Hardip Singh Beri, India’s Minister of Petroleum, told journalists today that state-owned refiners will add at least 15 million tons annually to diesel production capacity through the construction of a new refinery and the expansion of existing facilities, Bloomberg reported.

These expansions come amid disruptions in oil and fuel flows due to the war in the Middle East and the Russia-Ukraine war, with supply pressures worsening after Russia halted diesel exports in July to protect its domestic market following attacks on its refineries and ports.

According to data from Kpler, a firm specializing in tracking energy markets and trade, India surpassed Russia this year to become the world’s second-largest diesel exporter, strengthening its position as a key supplier to international markets.

Indian Oil, India’s largest refiner, expects to increase its annual diesel production by up to 9 million tons starting next year, following expansions that will add more than 17 million tons to crude oil processing capacity at three refineries.