Oil prices extend losses on OPEC+ considers another output hike

Oil prices extended losses on Thursday, with Brent crude down 0.40% to $67.33 and WTI down 0.44% to $63.69, driven by expectations that OPEC+ will consider another output hike at its upcoming weekend meeting. This potential increase, aimed at regaining market share and encouraged by strong Middle Eastern oil prices, was unexpected by some traders and follows prior output target raises. Further contributing to supply concerns, U.S. crude stockpiles unexpectedly rose by 622,000 barrels last week, according to API figures, contrary to analyst estimates.

Analysis

Crude oil prices are under significant pressure, extending a decline of over 2% from the prior session, driven by concurrent supply-side catalysts. Both Brent crude, down 0.40% to $67.33, and WTI crude, down 0.44% to $63.69, are reacting to market anticipation of another OPEC+ production hike in October. This potential increase, aimed at regaining market share, marks a shift from some traders' expectations of steady output and follows an existing 2.2 million bpd supply increase implemented between April and September. According to Haitong Securities, the cartel's confidence is bolstered by the sustained strength of Middle Eastern oil prices, which have remained the strongest globally despite rising production. Compounding this bearish sentiment is a surprise build in U.S. inventories, with American Petroleum Institute (API) data showing a 622,000 barrel increase, directly contradicting the consensus analyst estimate for a 2 million barrel drawdown. This API figure, while awaiting official government confirmation, suggests a softening U.S. demand or supply surplus that is currently weighing on the market.

Key Decisions for Investors

• Given the dual headwinds from a potential OPEC+ output hike and a surprise build in U.S. crude inventories, investors with long positions in crude and related ETFs like USO and BNO should consider hedging their exposure ahead of the weekend meeting.
• The primary catalyst for oil's next directional move will be the outcome of the OPEC+ discussions; a decision to increase production could extend the price decline, whereas maintaining current output levels could trigger a short-covering rally.
• Closely monitor the official U.S. government crude stockpile data to either confirm or refute the bearish signal from the API figures, as a significant divergence could introduce short-term market volatility and provide a trading opportunity.