SINGAPORE: Oil prices inched higher on Wednesday as traders shifted focus away from oversupply worries, taking comfort in OPEC+’s decision to keep a tight lid on production increases for November.
Brent crude futures rose 40 cents, or 0.6 percent, to $65.85 a barrel in early trade, while US West Texas Intermediate (WTI) gained 44 cents, or 0.7 percent, to reach $62.17. The modest uptick came after both benchmarks ended largely unchanged a day earlier as markets weighed the prospect of ample supply against a smaller-than-expected hike from the oil producers’ alliance.
OPEC+ stays cautious
The Organization of the Petroleum Exporting Countries and its allies agreed over the weekend to increase production by just 137,000 barrels per day for November, the smallest of the options they had discussed. The move signalled a cautious approach as the group tries to balance market stability against global economic uncertainties.
Analysts at ANZ noted that investors are likely to stay optimistic unless physical market data, such as rising inventories, start indicating weaker demand. “Until the physical market shows signs of softening via rising inventories, investors are likely to discount the impact of the production increases,” the analysts said.
However, gains in oil prices remain limited as concerns about Russian supply disruptions have eased. Crude shipments from Russia have held near a 16-month high over the past four weeks, helping to stabilise global supply, according to analysts.
US output and inventories in focus
Investors are also watching for the latest US oil inventory data from the Energy Information Administration (EIA), due later on Wednesday. Early figures from the American Petroleum Institute showed that US crude stocks rose by about 2.78 million barrels in the week ending October 3. At the same time, gasoline and distillate inventories reportedly fell, suggesting resilient fuel demand.
The EIA also said this week that US oil production is likely to set a larger record this year than previously anticipated, adding another layer of supply pressure to the global market.
Oil giants under pressure
Meanwhile, the world’s biggest oil companies are facing a different kind of challenge. Falling oil prices have forced the five major producers, Chevron, ExxonMobil, BP, Shell, and TotalEnergies, to reassess their spending plans, cut costs, and reconsider shareholder payouts that may no longer be sustainable.
Over the past decade, these companies have maintained generous dividends and share buybacks to retain investors even as the shift toward clean energy gathered pace. Since 2022, the top five have collectively paid out over $100 billion annually. But with prices retreating from the highs seen after Russia’s invasion of Ukraine, much of that generosity has been funded through rising debt.
Analysts at RBC Capital Markets and BofA Global Research estimate that most oil majors now need prices above $80 a barrel to sustain their current levels of dividends and buybacks. With oil prices well below that mark, the pressure to balance spending and debt has intensified.
Cost-cutting on the horizon
To stay financially healthy, TotalEnergies recently announced it will scale back share buybacks from the fourth quarter and cut costs by $7.5 billion by 2030. Other major producers are also expected to follow suit as they navigate a difficult trade-off between rewarding shareholders and investing in future production.
With global supply rising and demand growth slowing, oil markets may remain under strain for the rest of the year, forcing both OPEC+ and the world’s biggest oil companies to tread carefully in their next moves.