Crude oil moved closer to $95 per barrel on Monday as expectations of a supply deficit stemming from extended output cuts by Saudi Arabia and Russia overshadowed concerns about demand.
Data obtained from the market yesterday showed that Brent crude appreciated by 76 cents to sell at $94.70 a barrel, while the United States West Texas Intermediate crude futures rose by 71 cents to $91.48 per barrel.
On Friday, oil had its third consecutive week of weekly gains, lifted by the growing imbalance between demand and supply and by China’s latest industrial output report, which showed faster-than-expected growth in August.
Saudi Arabia and Russia this month extended a combined 1.3 million barrels per day of supply cuts to the end of the year.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, on Monday defended cuts by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) to oil market supply, saying international energy markets need light-handed regulation to limit volatility.
He also warned of uncertainty about Chinese demand, European growth, and central banks’ action to tackle inflation.
Speaking at the World Petroleum Congress in Calgary, Canada, he said the Chinese situation “is not bad yet.”
One of China’s latest policy moves to jumpstart the economy has also made market participants and analysts more bullish on oil. Last week, it cut the reserve ratio for banks for a second time this year in a move to increase liquidity in the system.
Despite this, the country remains a key risk because of its sluggish post-pandemic economic recovery, though its oil imports have remained robust.
The markets have started setting their eyes on $100 oil, with Citibank on Monday predicting that Brent prices could exceed $100 a barrel this year.
Also, Chevron Chief Executive Mike Wirth said in a Bloomberg News interview he thinks oil will cross $100 per barrel.
Meanwhile, analysts warn that Saudi Arabia and Russia’s output cuts could lead to a 2 million barrels per day deficit in the fourth quarter, and a subsequent drawdown in inventories could leave the market exposed to further price spikes in 2024.
Falling global inventories amid a tightening market with the OPEC+ and Saudi production cuts have supported oil prices in recent weeks.
The markets will also be looking at central banks this week, including an interest rate decision from the US Federal Reserve and the Bank of England.
