Commodities
Oil prices rise to 9-month high on worries about tight supply
© Reuters. FILE PHOTO: Pump jacks operate at sunset in an oil field in Midland, Texas U.S. August 22, 2018. Picture taken August 22, 2018. REUTERS/Nick Oxford/File Photo
By Scott DiSavino
NEW YORK (Reuters) – Oil prices gained almost 1% to a nine-month high on Friday on rising U.S. diesel futures and worries about tight oil supplies after Saudi Arabia and Russia extended supply cuts this week.
futures rose 73 cents, or 0.8%, to settle at $90.65 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 64 cents, or 0.7%, to settle at $87.51.
Both crude benchmarks remained in technically overbought territory for a sixth straight day, with Brent’s settlement its highest since Nov. 16. WTI’s settlement was its highest since Sept. 6, which was its highest since November.
For the week, both benchmarks were up about 2%, following gains last week of about 5% for Brent and about 7% for WTI.
“Crude prices continue to trade on supply-side drivers. No one is doubting that OPEC+ will keep this market tight going into the winter,” Edward Moya, senior market analyst at data and analytics firm OANDA, said in a note.
The Organization of the Petroleum Exporting Countries (OPEC) and their allies like Russia are collectively known as OPEC+.
This week, OPEC member Saudi Arabia and Russia extended their voluntary supply cuts of a combined 1.3 million barrels per day to the end of the year.
Saudi Arabia will probably find it difficult to end its cuts at the end of the year without triggering a price slide, Commerzbank (ETR:) analysts said in a note.
In the U.S., energy firms this week added one oil rig, the first weekly increase since June, according to energy services firm Baker Hughes.
Rising U.S. diesel prices also supported crude prices with futures up about 3%.
Energy traders noted seasonal refinery maintenance in Russia in September will likely reduce diesel exports but could lead to an increase in oil exports.
Separately, Venezuelan President Nicolas Maduro arrived in China on Friday for his first visit in five years. China is the world’s largest oil importer and Venezuela, an OPEC member, has the world’s largest proven crude reserves.
CHINA DEMAND CONCERNS
The oil market is still concerned about the demand outlook in China, which has had a sluggish post-pandemic recovery and stimulus pledges have fallen short of expectations.
China has been deluged by heaviest rain since records began 140 years ago in Hong Kong, killing two people and injuring more than 140, state media reported.
Data on Thursday showed overall Chinese exports and imports fell in August, as sagging overseas demand and weak consumer spending squeezed businesses.
In Germany, the lower house of parliament passed a bill that could reduce future fossil fuel demand by phasing out oil and heating systems.
Oil traders are also watching whether central banks in the U.S. and Europe will keep fighting inflation with interest rate hikes.
“Riyadh (Saudi Arabia) is acutely aware of the tightrope it walks between tightening the market and upsetting any up-and-until-now progress achieved by central banks in taming price-rise driven inflation,” said John Evans of oil broker PVM.
Interest rate hikes can slow economic growth and reduce oil demand.
Investing.com — Oil prices settled lower Friday, ending the week with a loss as weaker U.S. nonfarm payrolls stoked concerns about an economic-led slowdown in crude demand.
At 2:30 p.m. ET (1430 GMT), the futures (WTI) traded fell 2.1% to settle at $67.67 a barrel, while contract fell 2.2% to $71.06 per barrel.
U.S. economic slowdown worries resurface after weak jobs report
The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions.
Nonfarm payrolls came in at 142,000 last month, up from a downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000.
Following the release, bets that the Fed will introduce a deeper 50 basis-point rate cut — rather than a shallower 25 basis-point reduction — increased.
Concerns about the demand come just a day after OPEC+ said it had agreed to postpone a planned increase in oil production for October and November.
U.S., Europe working on Iran sanctions
Geopolitical tensions ratcheted up on Friday after the U.S. and Europe they were working on sanctions to impose on Iran after the Tehran sent missiles to Russia.
The U.S. had previously warned Iran about transferring missiles to Russia, saying it would represent a major escalation in Iran’s support of Russia’s war against Ukraine.
(Reuters) – Goldman Sachs adjusted its expectations for OPEC+ oil production saying it now expects three months of production increases starting from December instead of October, the bank said in a note on Friday.
OPEC+ has agreed to delay a planned oil output increase for October and November, the producers group said on Thursday after crude prices hit their lowest in nine months, adding it could further pause or reverse the hikes if needed.
However Goldman Sachs maintained its range of $70-85 per barrel and a December 2025 Brent forecast at $74 per barrel.
The investment bank expects the effects of a modest reduction in OPEC+ supply in the upcoming months to be counterbalanced by easing effects from the current softness in China’s demand and faster-than-expected recovery of Libya’s supply.
“We still see the risks to our $70-85 range as skewed to the downside given high spare capacity, and downside risks to demand from weakness in China and potential trade tensions,” Goldman Sachs said.
Brent crude futures were down $1.63, or 2.24%, to $71.06 a barrel on Friday, their lowest level since December 2021. U.S. West Texas Intermediate crude futures fell $1.48 on Friday, or 2.14%, to $67.67, their lowest since June 2023. [O/R]
Investing.com — Strategists at Citi Research said oil prices could decline to around $60 per barrel by 2025, citing a significant market surplus as the primary driver.
While recent supply disruptions in Libya and a delayed production cut unwinding by OPEC+ have offered short-term support for Brent prices in the $70-72 range, Citi views this as temporary.
“At the time of writing, markets have not reacted to the OPEC+ decision, with Brent around flat to the 4 September close. Still, the Libyan situation could take months rather than a week to resolve, strategists wrote.
They highlight the likelihood of a strong market surplus emerging next year, pushing prices lower.
“We recommend selling on a bounce toward ~$80 Brent, as we look ahead to moves down to the $60 range in 2025 as a sizeable market surplus emerges,” the note states.
OPEC+ has delayed the start of its planned production cut unwind from October 2024 to December 2024, with the process now set to conclude by the end of 2025. This decision comes in response to recent market weakness and price declines, despite ongoing disruptions to Libyan oil supplies and broader economic concerns in the U.S. and China.
Separately, Bank of America’s Commodities Research team has revised down its price forecast to $75 per barrel for the second half of 2024, down from nearly $90, and for 2025, reduced from $80.
The team cites concerns about growing global oil inventories despite assuming OPEC+ will delay planned production increases. They note that weaker demand growth, combined with record OPEC+ spare capacity exceeding 5 million barrels per day, has dimmed the outlook for oil prices.
“In effect, we now see Brent oil prices moving from the top toward the middle of our unchanged $60-80/bbl medium-term range faster than previously warned,” BofA strategists said. This surplus in capacity, along with slower demand, also reduces the risk of price spikes from potential geopolitical disruptions.
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