Oil futures: Crude surges as Saudi flags output cuts, Brent tops $100/b
Quantum Commodity Intelligence - Crude oil futures Tuesday were sharply higher as markets continued to react positively to comments from Saudi Arabia that it may cut production, citing excessive volatility in futures markets causing a disconnect from the physical.
Front-month October ICE Brent futures were trading at $100.27/b (1945 GMT), compared to Monday's settle of $96.48/b and over $7.50/b up from Monday's low of $92.36/b.
At the same time, October NYMEX WTI was trading $93.72/b, versus Monday's settle of $90.36/b.
Prices rebounded Monday after Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said "extreme" volatility and lack of liquidity mean the futures market is increasingly disconnected from broader market fundamentals and that OPEC+ may be forced to cut production.
He added that futures prices don't reflect the underlying fundamentals of supply and demand, which may require the group to tighten production when it meets next month to consider output targets.
"Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve," he said.
OPEC+ is scheduled to meet next on 5 September, with the Saudi comments prompting speculation that the group will at least freeze output or even trim headline production levels.
"Possibly Saudi Arabia wants to prepare for a scenario in which the US agrees to a renewal of the nuclear agreement with Iran, thereby allowing the latter to return to the oil market," commented Carsten Fritsch of Commerzbank.
The group is currently falling nearly 3 million bpd under target, according to findings based on seven data suppliers.
Crude also found support after the Caspian Pipeline Consortium (CPC) confirmed its terminal on the Black Sea would be hit by fresh disruptions after damage to its loading facilities, the latest in a string of mishaps to hit the system that carries as much as 1.5 million bpd of Kazakhstan's crude oil to international markets.
Iran
On the downside for oil markets, traders continue to monitor developments on a potential nuclear deal between Iran and Western nations, potentially paving the way to easing sanctions on oil, shipping and insurance.
Iran sent a "reasonable" response to the EU's latest proposal for reviving the 2015 nuclear accord and diplomats might meet this week in Vienna to discuss the next steps, according to the bloc's foreign-policy chief.
Josep Borrell told reporters the US hadn't yet submitted its answer to the Iranian positions, which were handed to Brussels on 15 August.
US officials, however, told reports that Iran had dropped some of its main demands on resurrecting a deal to rein in Tehran's nuclear program, including its insistence that international inspectors close some probes of its atomic programme.
While a deal could add around 1 million bpd of additional oil to markets within a few months, a 'no deal' would, in turn, reduce Iranian exports.
"If the chance to revive the deal falls apart, the US will turn back to tougher enforcement of sanctions on oil and petrochemical sales. That could cut another 500,000 bpd or so from Iranian oil exports," said Robin Mills, Qamar Energy, writing for the UAE's The National.
Meanwhile, Dutch TTF futures prices for Oct22 retreated around 2.5% to €273/MWh Tuesday, having settled at a record high on Monday and raising the prospect of further gas-to-oil switching.
