Oil prices saw a modest uptick on Monday, buoyed by the anticipation of supply cuts by major oil-producing nations within the OPEC+ alliance. Additionally, growing optimism that the Federal Reserve will maintain its current interest rates to support the U.S. economy added to the positive sentiment in the oil market.
- Brent crude November futures inched up by 3 cents, reaching $88.58 per barrel at 0333 GMT.
- U.S. West Texas Intermediate crude (WTI) October futures gained 9 cents, settling at $85.64 per barrel.
These slight gains followed a week where both contracts closed at their highest levels in over six months, having experienced some weakness in the preceding weeks.
“Crude oil prices have been primarily driven by the anticipation of additional supply cuts from major oil-producing nations, Russia and Saudi Arabia,” noted Sugandha Sachdeva, Executive Vice President and Chief Strategist at Acme Investment Advisors. However, Sachdeva cautioned that the ongoing rise in U.S. oil production could potentially limit substantial price gains.
Russian Deputy Prime Minister Alexander Novak revealed that Russia had reached an agreement with its partners in the Organization of the Petroleum Exporting Countries (OPEC) regarding the parameters for continued export cuts. A detailed announcement outlining the planned cuts is expected later this week. Notably, Russia had already announced a 300,000 barrels per day (bpd) reduction in exports for September, following a 500,000 bpd cut in August. Additionally, Saudi Arabia is anticipated to extend its voluntary 1 million bpd cut into October.
Speaking at the APPEC conference in Singapore, Russell Hardy, Chief Executive of Vitol, mentioned that the global crude market may ease slightly in the next six to eight weeks due to refinery maintenance. However, the supply of sour crude, characterized by higher sulfur content, is expected to remain tight. Hardy emphasized, “Because of the OPEC+ cuts, there’s not sufficient supply (of sour crude) for all these complex refineries in India, Kuwait, Jizan, Oman, and China.”
In the United States, job growth exhibited strength in August, although the unemployment rate increased to 3.8%, and wage growth moderated. This suggests that labor market conditions are stabilizing, reinforcing expectations that the Federal Reserve will refrain from raising interest rates this month.
Meanwhile, in China, there was an unexpected expansion in manufacturing activity in August, as indicated by data from Caixin’s manufacturing PMI survey. This development alleviated some concerns about the economic well-being of the world’s largest oil importer.
Beijing’s recent announcement of economic support measures, including deposit rate cuts at major state-owned banks and relaxed borrowing rules for homebuyers, has also played a role in supporting oil prices.
Awaiting Property Sector Recovery:
Despite these positive indicators, investors remain watchful for more substantial efforts to bolster China’s struggling property sector, which has been a significant drag on the country’s economy since emerging from the pandemic.