Oil prices experienced a slight retreat on Monday, yet remained in proximity to their most elevated levels since mid-April, bolstered by a commitment from major producers Saudi Arabia and Russia to extend supply reductions for an additional month. This concerted effort aims to further tighten global markets and underpin prices.
Brent crude futures dipped by 15 cents, representing a 0.2% decline, settling at $86.09 per barrel by 0640 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude hovered at $82.67 per barrel, down by 15 cents or 0.2%.
Both of these contracts concluded last week with their sixth consecutive weekly gains, signifying the most enduring winning streak observed since December 2021 through January 2022.
Suvro Sarkar, the lead energy analyst at DBS Bank, remarked, “The bullishness is in line with our expectations of a stronger second half for oil compared to the first half.
Sarkar cautioned, however, that while further upward momentum is conceivable, oil prices might consolidate around the $85 per barrel threshold (Brent) for a duration. Such a consolidation could be constrained by persistent concerns surrounding the pace of China’s recovery and uncertainties pertaining to the extended duration of Saudi Arabia and Russia’s production and export curbs, given the latent production capacity at their disposal.
The recent upswing in oil prices can be attributed to a confluence of factors, including prospects of reduced U.S. interest rate hikes, a contraction in OPEC+ supplies, and optimistic prospects of stimulus-induced resumption in oil demand recovery within China, the world’s premier crude importer, following a lackluster second quarter.
Saudi Arabia, the globe’s leading oil exporter, announced an extension of its voluntary production cut of 1 million barrels per day (bpd) until the end of September. The kingdom has even hinted at the possibility of further extension or deepening beyond September. For September, Saudi Arabia anticipates a production level of approximately 9 million bpd.
Russia, in a parallel move, communicated its intent to curtail oil exports by 300,000 bpd in September. Additionally, operations at the world’s major oil supply port, Novorossiysk, resumed after a Russian warship was severely damaged in a Ukrainian naval drone attack.
Corresponding to the production cut initiatives, Saudi Aramco (TADAWUL:2222) increased the official selling prices for the majority of grades sold to Asia for the third consecutive month in September.
Tina Teng, an analyst at CMC Markets, noted that OPEC+’s production curbs, China’s stimulus initiatives, and an improved U.S. economic outlook are acting as pillars of support for crude prices. Nonetheless, Teng pointed out that prices are nearing the near-term resistance marked by April’s highs.
Tony Sycamore, an analyst at IG market, suggested that a sustained breakthrough for WTI above $84.00 per barrel might pave the way for a surge toward $93.50.
Market participants are keeping a keen watch on Chinese economic data this week to ascertain Beijing’s inclination towards implementing additional stimulus measures to buttress the second-largest economy globally.
Meanwhile, in the United States, the number of operational oil rigs dwindled by four to 525 last week, marking the eighth consecutive week of decline and establishing a nadir since March 2022, as reported by Baker Hughes in its weekly update on Friday.