Oil prices ease but supply cuts keep Brent above $90/bbl
In the early Asian trade on Monday, oil prices experienced a decline, primarily influenced by economic concerns related to China, which weighed on the outlook for fuel demand. However, Brent crude managed to maintain its position above the $90 per barrel mark, supported by tightening supplies in the wake of supply cuts extended by major oil-producing nations, Saudi Arabia and Russia.
Brent crude, a global benchmark, retreated by 49 cents, representing a 0.5 percent drop, to settle at $90.16 per barrel as of 0022 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude also saw a decrease, falling by 74 cents, or 0.9 percent, to reach a price of $86.77 per barrel.
The market sentiment appears to be influenced by concerns about the economic health of China, a major consumer of oil. These concerns have led to apprehensions about a potential decline in fuel demand. However, Brent’s ability to remain above the $90 per barrel level suggests that supply-related factors, such as production cuts by Saudi Arabia and Russia, continue to support the market.
The oil market’s dynamics are likely to be closely monitored for developments in both supply and demand, as they can significantly influence oil prices in the near term.
ANZ analysts have highlighted that concerns regarding the economic growth of China had a dampening effect on market sentiment across various commodities. These concerns are significant because China is a major consumer of commodities, including oil, and any uncertainties about its economic outlook can influence the demand for these resources.
The situation was further complicated by the strengthening of the U.S. dollar (USD), which persisted for eight consecutive weeks. A stronger USD tends to diminish the appeal of commodities priced in dollars and can lead to reduced investor appetite for such assets.
Despite the recent declines, both Brent and U.S. West Texas Intermediate (WTI) crude oil contracts had shown strength over the past two weeks. In particular, Brent crude had settled at its highest level since November on the previous Friday.
This uptrend was fueled by an announcement from Saudi Arabia and Russia, indicating their decision to extend voluntary supply cuts amounting to a combined 1.3 million barrels per day. These supply cuts are set to continue until the end of the year, contributing to tighter global oil supplies and providing support for oil prices.
The oil market remains sensitive to various factors, including supply dynamics, global economic conditions, and currency movements, all of which can influence price fluctuations. Therefore, market participants are likely to closely monitor these developments to assess their potential impacts on oil prices in the coming weeks.
The International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) are both scheduled to release their respective monthly reports in the upcoming week. These reports provide crucial insights into the global oil market, including data on supply, demand, and market trends.
ANZ analysts have noted that any indications of robust demand for oil in the reports from both the IEA and OPEC are likely to have a positive impact on oil prices. This suggests that the market is closely attuned to the assessments and projections provided by these influential organizations. If the reports from the IEA and OPEC point to strong or increasing demand for oil, it could serve as a catalyst for driving oil prices higher in the market.
Given the significance of these reports in shaping market sentiment and influencing trading decisions, investors and industry participants will be keenly observing the findings and analyses presented in the forthcoming reports from the IEA and OPEC. The outcomes of these reports have the potential to play a pivotal role in determining the near-term trajectory of oil prices.
In the United States, oil producers made a notable addition of one oil rig in the previous week. This marked the first increase in oil rigs since June, as reported by Baker Hughes in its weekly rig count report. However, it is important to note that despite this recent uptick, the total rig count remains considerably lower compared to the same period last year. Specifically, the total rig count in the U.S. is down by 127 rigs, representing a decline of 17% compared to the previous year. This indicates that while there may be some renewed activity in the U.S. oil drilling sector, it has not fully recovered to pre-pandemic levels.
Regarding the outlook for West Texas Intermediate (WTI) crude oil prices, analyst Tony Sycamore from IG suggests that WTI is likely establishing a new higher range, with prices expected to remain above $83 per barrel. However, he also notes a resistance level at $93.50 per barrel. These levels may shape the trading range for WTI in the weeks ahead.
Sycamore’s analysis points to concerns related to demand in China and Europe, which could potentially act as limiting factors on further upside for oil prices. Economic conditions and demand trends in these regions will continue to be closely monitored by market participants, as they can significantly influence the direction of oil prices in the near term.
