DTN Oil

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures nearest delivery and Brent crude traded on the Intercontinental Exchange rallied in early trade Tuesday, sending the new front-month West Texas Intermediate contract above $92 barrel (bbl) following remarks from Saudi Arabian oil minister Prince Abdelaziz Bin Salman hinting at a possible shift in OPEC+ production policy as a response to the recent fall in oil prices, citing a growing disconnect between what the prince called a volatile and illiquid futures market and underlying fundamentals.

OPEC+ may be forced to agree to a cut in crude production at its Sept. 5 meeting to realign the paper market with underlying fundamentals, according to Bin Salman.

In a written response to Bloomberg News, the oil minister said, "The paper market fell into vicious circle ... amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and uncertainty and ambiguity about the potential impacts of price caps, embargoes, and sanctions."

Brent futures, the international price benchmark for crude oil, fell more than 20% since early June when it traded around $125 bbl, dragged lower by real-time data showing demand contraction in three major global economies -- China, European Union, and the United States. In August, European manufacturing contracted for a second consecutive month according to overnight data released from the Eurozone, with business activity stuck in a downturn midway through the third quarter. China's economy suffered a shock slowdown this summer amid its zero-COVID policy that has led to ongoing disruptions to business activity. These bearish factors are likely to linger if not accelerate heading into the fourth quarter.

Bin Salman called the oil market's logic misplaced, suggesting limited spare capacity from OPEC+ producers should be the guide for the market.

"The markets are ignoring OPEC+'s limited spare capacity and the risk of severe disruptions. Soon we will start working on a new agreement beyond 2022 which will build on our previous experiences, achievements, and successes. Witnessing this recent harmful volatility disturb the basic functions of the market and undermine the stability of oil markets will only strengthen our resolve," stated the oil minister.

Further supporting the oil complex early Tuesday is dimming optimism over multinational nuclear talks with Iran, with U.S. State Department spokesperson Ned Price indicating reaching an agreement with Tehran is "highly uncertain" adding that "gaps remain."

In early August, the European Union put forward a final text to restore the Joint Comprehensive Plan of Action reached in 2015, with the United States withdrawing from in 2018. Iran early last week submitted "its response" that has been called "reasonable" by the EU negotiators. U.S. State Department acknowledged that Washington is "encouraged by the fact that Iran appears to have dropped some of its non-starter demands," including a demand that Washington delist the Islamic Revolutionary Guard Corps as a foreign terrorist organization but said "there are still some outstanding issues that must be resolved."

Should the agreement materialize, it could lift sanctions on at least 1 million barrels per day (bpd) in crude oil exports from Iran, according to several estimates. Ambiguity remains, however, over how much oil Iran could bring to market in the short-term, with some analysts suggesting tapping into offshore oil storage could at least provide Europe with a cushion as they face uncertainty over energy supplies this winter.

Near 7:30 a.m. EDT, WTI October futures added $1.39 to trade near $91.75 bbl, and Brent rallied to $97.74 bbl, up $1.26. NYMEX September RBOB futures gained 1.54 cents to $2.8966 gallon, while the September ULSD contract added 2.11 cents to near $3.7973 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com