Oil prices edged nearly 1% higher, reaching a nine-month peak on Friday due to an uptick in U.S. diesel futures and concerns over tight oil supplies, following supply cut extensions by Saudi Arabia and Russia.
Brent futures ascended by 73 cents (0.8%) to close at $90.65 a barrel. U.S. West Texas Intermediate (WTI) crude increased by 64 cents (0.7%) to close at $87.51.
For the sixth consecutive day, both crude benchmarks sustained an overbought position. Brent’s close marked its highest since November 16, and WTI’s highest since September 6, which was its peak since November. Over the week, both markers rose approximately 2%, succeeding last week’s gains of around 5% for Brent and 7% for WTI.
Edward Moya from analytics firm OANDA highlighted that oil prices are majorly driven by supply dynamics, emphasizing that the OPEC+ alliance is anticipated to maintain a tight market throughout the winter.
OPEC+ – comprising the Organization of the Petroleum Exporting Countries and allies such as Russia – witnessed extensions in voluntary supply cuts by key members Saudi Arabia and Russia, slashing a combined 1.3 million barrels daily until year-end. Analysts at Commerzbank suggest that Saudi Arabia might struggle to conclude its cuts by year-end without affecting prices.
In the U.S., one additional oil rig was reported this week – the first increment since June, per Baker Hughes. Rising U.S. diesel prices bolstered crude prices, with heating oil futures climbing nearly 3%.
Traders emphasized that Russia’s scheduled refinery maintenance in September might decrease diesel exports but could amplify oil exports.
Venezuelan President Nicolas Maduro made a significant visit to China after five years. With Venezuela boasting the world’s largest confirmed crude reserves and China being the topmost oil importer, their alliance is crucial.
Market observers remain wary about oil demand in China, which has experienced a slow post-pandemic resurgence. Recent heavy rains in Hong Kong, a decline in Chinese trade figures, and Germany’s potential phase-out of fossil fuel-based heating systems are also influencing market sentiments.
Central banks in the U.S. and Europe’s stance on countering inflation with interest rate hikes is under scrutiny. As John Evans from PVM noted, Saudi Arabia is conscious of the balance between tightening oil markets and not hindering central banks’ efforts to control inflation. Rising interest rates can potentially temper economic growth and dampen oil demand.
