Global oil prices continued their upward trajectory for a third consecutive session on Monday, fueled by a combination of factors, including predictions of a growing supply deficit in the fourth quarter, extended production cuts by major oil-producing nations, and signs of a demand recovery in China, the world's largest crude oil importer.
In the early hours of trading, Brent crude futures surged by 39 cents, or 0.4%, reaching $94.32 per barrel. Simultaneously, U.S. West Texas Intermediate (WTI) crude futures climbed 53 cents, or 0.6%, to hit $91.30 per barrel.
CMC Markets analyst Tina Teng highlighted several bullish factors that are currently underpinning the oil market's upward momentum.
These factors include China's recent stimulus policy, robust U.S. economic data, and the continued output cuts by the OPEC+ alliance.
China's stimulus
China's central bank recently implemented a reserve ratio cut to bolster liquidity and support its economy.
This move is seen as a significant driver of the growing optimism surrounding China's economic recovery, which, in turn, is bolstering oil demand.
Central bank decisions
Traders and market participants will closely monitor central banks' decisions and commentary this week, particularly from the U.S. Federal Reserve, regarding interest rate policies. Additionally, key economic data releases from China will be watched closely for further insights into the health of the global economy.
Brent and WTI crude oil prices have now risen for three consecutive weeks, reaching their highest levels since November.
These price surges put them on track for their most significant quarterly increase since the first quarter of 2022, following Russia's invasion of Ukraine.
Supply cuts by Saudi Arabia
Saudi Arabia and Russia, both major players in the global oil market, have extended their production cuts until the end of the year as part of the OPEC+ group's strategy.
This move, coupled with increased output from Chinese refineries driven by strong export margins, could push the market into a 2 million barrels per day (bpd) deficit in the fourth quarter. This potential deficit raises concerns about a subsequent drawdown in inventories and the possibility of further price spikes in 2024, according to analysts at ANZ.
Focus shifts to demand outlook
Edward Moya, an analyst at OANDA, observed that oil prices may comfortably remain above the $90 per barrel level.
With this stability in prices, attention is shifting towards assessing the demand outlook from the world's two largest economies, the United States and China.
ANZ analysts predict that global oil demand growth is on track to reach 2.1 million bpd, aligning with forecasts from the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC). This expectation further reinforces the positive sentiment surrounding the oil market.
As oil prices continue their ascent, the intersection of supply dynamics and evolving demand patterns will be at the forefront of discussions in the energy markets, shaping the industry's outlook in the months ahead.
