Oil prices witnessed a significant rebound, reaching their highest levels in over half a year, bringing an end to a two-week streak of losses. This surge in prices was primarily driven by mounting expectations of a supply squeeze in the global oil market.
Saudi Arabia, a leading member of the Organization of the Petroleum Exporting Countries (OPEC), is widely anticipated to extend its voluntary 1 million barrel per day oil production cut into October. This move signals the continuation of supply restrictions crafted by OPEC and its allies, collectively known as OPEC+, aimed at bolstering oil prices.
Russia joins OPEC+ in export reduction
Furthermore, Russia, the world’s second-largest oil exporter, has already committed to reducing oil exports next month, as confirmed by Deputy Prime Minister Alexander Novak. These combined efforts by major oil-producing nations have sparked optimism among traders and investors.
Brent crude, the international benchmark, surged by $1.66, or 1.9%, to close at $88.49 per barrel. Earlier in the session, it reached a peak of $88.75 per barrel, a level not seen since January 27.
WTI reaches $85.02
Similarly, U.S. West Texas Intermediate crude (WTI) experienced a notable increase of $1.39, approximately 1.7%, settling at $85.02. It reached an intraday high of $85.81 per barrel, the highest since November 16.
This week, Brent crude recorded a remarkable gain of about 4.8%, marking its most significant weekly increase since late July, while WTI advanced by an impressive 7.2%, its most substantial weekly gain since March.
Analyst Phil Flynn of Price Futures Group noted, “There is a realization that the economy is not falling off the map, and signs indicate that demand is approaching record highs. People have to face the cold, hard reality that supplies are below average.”
In the United States, the appetite for oil has remained robust, with commercial crude inventories declining in five out of the past six weeks, according to surveys conducted by the U.S. Energy Information Administration.
Additionally, a closely monitored U.S. report released on Friday revealed an increase in the unemployment rate and a moderation in wage growth, further strengthening expectations of a pause in interest rate hikes.
Amidst these developments, expectations for a global demand recovery are on the rise. The euro zone’s manufacturing downturn showed signs of easing, suggesting a potential turnaround for the beleaguered factories in the region. Furthermore, an unexpected rebound in China’s economic activity has provided hope for export-reliant economies, as indicated by private surveys.
Both OPEC and the International Energy Agency are relying on China, the world’s largest oil importer, to drive oil demand growth for the remainder of 2023. However, concerns linger due to the sluggish pace of China’s economic recovery.
Tamas Varga, an oil broker at PVM, stated, “The remainder of this year promises to bring supply shortages, partly owing to reasonably healthy global consumption and partly because of Saudi Arabia’s determination to provide a high price floor.” He cautioned that unless the Chinese economy experiences a confident revival in the coming year, the sentiment in the oil market may turn sour.
As a sign of potential future supply trends, U.S. oil rigs remained unchanged at 512 for the week, holding at their lowest level since February 2022, according to energy services firm Baker Hughes.
With oil prices at their highest point in seven months and supply concerns lingering, the global energy landscape remains in flux, impacting economies and markets around the world.
