NEW YORK: Oil prices edged higher on Monday (Sept 4) on expectations that Opec+ would keep supplies tight and speculation that the US Federal Reserve (Fed) will cease its aggressive interest rate increase campaign.
Saudi Arabia has spearheaded efforts to support prices, making large voluntary output cuts as part of a production deal agreed by the Opec+ producer group comprising the Organization of the Petroleum Exporting Countries (Opec) and allies including Russia.
The kingdom is widely expected to extend its voluntary 1 million barrel per day (bpd) cut for a fourth consecutive month into October. Saudi Arabia’s previous announcements have come ahead of its official selling prices, which typically emerge in the first week of the month.
Russian Deputy Prime Minister Alexander Novak, meanwhile, has said that Moscow had agreed with Opec+ partners on the parameters for continued export cuts in October.
Saudi Arabia and Russia could withdraw the cuts at any point, said Oanda analyst Craig Erlam, “but I can’t imagine they’ll be in any rush and risk sending the price tumbling again”.
Brent crude futures for November crept 45 cents higher to settle at US$89.00 (RM414.29) a barrel. US West Texas Intermediate crude October futures rose 40 cents to US$85.95 (RM400.09).
Global crude oil supplies are expected to improve in the next six to eight weeks because of refinery maintenance, although sour crude will stay tight, said Russell Hardy, chief executive of the world’s largest independent oil trader, Vitol.
Speaking at the APPEC conference in Singapore on Monday, he said sour crude economics will remain stronger than sweet because of the Opec+ cuts.
“Because of the Opec+ cuts, there’s not sufficient supply (of sour crude) for all these complex refineries in India, Kuwait, Jizan, Oman and China,” he said.
“They all want to buy sour crude, but it is not really a Western supply, it is mainly from the Arab Gulf. There are too many customers and not enough material to go around.”
“The volatility is coming from products because refining capacity is very, very tight. Lots of refineries closed during Covid and the West really doesn’t have the product making capacity it needs, now that Russian exports are making their way to Asia,“ Hardy said.
Ben Luckock, co-head of oil trading at global commodities trading firm Trafigura, told the conference the oil market is vulnerable to price spikes due to low inventories and underinvestment in new oilfields.
While the market sees the fair price for oil at US$72 to US$88 per barrel, “the markets are probably a bit too relaxed.”
“I think the market is vulnerable to price spikes because of the long-term underinvestment in new oilfields. Higher interest rates, which make it more expensive to hold oil in storage, are another factor,” he told Reuters on the sidelines of the event.
US August jobs data, meanwhile, has strengthened expectations that the Fed will pause its increases to interest rates this month.
In China, manufacturing activity expanded unexpectedly in August and a series of economic measures to support the country's post-pandemic recovery have ignited optimism that demand will pick up in the world’s largest oil importer.
“... The market does appear to have a more receptive and less cynical ear this morning,“ said John Evans at oil broker PVM.
Chinese leader Xi Jinping’s “promises of support for the services sector and relaxing of cross-border trade restrictions find sympathy from a market that has fewer drivers with the absence of US participants.” – Reuters
Source: The Sun Daily
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