Global oil prices surged to their highest levels in 10 months on Tuesday before experiencing a slight retreat, as investors seized the opportunity to book profits after three consecutive sessions of gains, all driven by prolonged production cuts from major oil-producing nations Saudi Arabia and Russia.
The global benchmark, Brent crude futures, concluded the day down by 9 cents, settling at $94.34 per barrel. Earlier in the session, it had reached a high of $95.96 per barrel, a level not seen since November.
Similarly, U.S. West Texas Intermediate (WTI) crude futures decreased by 28 cents to close at $91.20 per barrel, having earlier peaked at $93.74 per barrel, marking its highest level since November.
In response to Brent surpassing the $95 per barrel threshold on Tuesday, investment bank UBS announced its profit-taking stance. However, UBS strategists anticipate that Brent will continue to trade within a range of $90 to $100 per barrel in the coming months, with a year-end target of $95 per barrel.
Supply concerns persist, driven by the recent decision of OPEC+ members Saudi Arabia and Russia to extend their combined production cuts of 1.3 million barrels per day (bpd) until the year’s end.
Adding to supply dynamics, the Russian government is reportedly contemplating imposing export duties of $250 per metric ton on all types of oil products, a significantly higher rate than the current fees. These duties are expected to be in effect from October 1st until June 2024, aiming to address fuel shortages, according to sources cited by Reuters.
Furthermore, U.S. oil output from the leading shale-producing regions is on track to decline to 9.393 million bpd in October, the lowest level since May 2023, as reported by the U.S. Energy Information Administration earlier this week. This would mark the third consecutive monthly decline.
Market sources, citing figures from the American Petroleum Institute, indicated on Tuesday that U.S. crude oil stockpiles fell by approximately 5.25 million barrels last week, surpassing analysts’ expectations of a 2.7 million-barrel decrease. U.S. government data on inventories is scheduled for release on Wednesday.
Nonetheless, uncertainties regarding demand may exert pressure on the market. Saudi Aramco CEO Amin Nasser recently revised the company’s long-term global demand outlook to 110 million bpd by 2030, down from a prior estimate of 125 million bpd.
Saudi Energy Minister Prince Abdulaziz bin Salman defended the OPEC+ supply cuts, emphasizing the need for limited regulation in international energy markets to mitigate volatility. He also highlighted uncertainties related to Chinese demand, European economic growth, and central bank measures aimed at combating inflation.
This week, central banks in the U.S., Britain, Japan, Sweden, Switzerland, and Norway are expected to make interest rate decisions, adding an additional layer of market anticipation.
On Tuesday, Wall Street’s primary indices recorded declines, with the Nasdaq and the S&P 500 reaching their lowest levels in over three weeks, influenced by rising Treasury yields in anticipation of the upcoming U.S. Federal Reserve policy meeting.
The Federal Reserve is widely expected to maintain benchmark interest rates within the current range of 5.25% to 5.50% during its meeting on Wednesday, as core inflation inches closer to the Fed’s 2% target.