Oil prices are experiencing a resurgence, with a four-session climb attributed to supply constraints and mounting speculation surrounding the OPEC+ consortium’s plans to prolong output reductions. Major benchmarks have seen modest gains, including U.S. West Texas Intermediate crude (WTI), which increased by 13 cents or 0.2%, reaching $83.76 per barrel. Likewise, Brent crude rose by 17 cents or 0.2%, touching $87 per barrel as of 0325 GMT. This week, WTI has surged over 5%, while Brent has risen by approximately 3%.
Anticipating Saudi Arabia’s Move
Analysts are widely anticipating Saudi Arabia‘s decision to extend its voluntary 1 million barrels per day oil production cut into October. This move will further complement the efforts of the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
The National Australia Bank underscored its projection of extended cuts, noting that oil prices above $90 per barrel on a sustained basis would be necessary to entice OPEC supply back into the market and encourage increased drilling activity among U.S. shale producers.
Recent Government Data
Recent U.S. government data revealed a more substantial than anticipated decline of 10.6 million barrels in U.S. crude inventories for the past week. Since mid-July, commercial crude oil inventories have plummeted by 34 million barrels. The shift in U.S. inventories often serves as an indicator of the global demand-supply equilibrium, with continuous depletion implying potential supply shortages.
The product market also indicated stronger demand, with implied gasoline demand rebounding for the first time in three weeks, noted ANZ in a research note.
Assisting the rally, the weakening U.S. dollar, which is poised to conclude a six-week winning streak, has rendered oil prices more affordable to buyers using other currencies, thus alleviating pressure on oil demand.
Chinese Factory Activation
Further boosting oil prices, Chinese factory activity has returned to expansion, and the government has escalated efforts to bolster the housing market. Such actions are anticipated to stimulate demand growth in the second-largest global oil consumer.
China’s central bank has declared a reduction in the foreign exchange reserves that financial institutions are mandated to maintain, a move perceived as a strategy to slow the recent depreciation of the yuan.
With U.S. monthly inflation rates indicating deceleration, expectations of unchanged interest rates next month from the Federal Reserve have solidified. The U.S. August payrolls data, set to be released later, may offer additional insights into this matter.