On Monday, oil prices climb and thus reversing some of Friday’s losses, as investors focused on a tight global supply outlook and a last-minute deal that avoided a U.S. government shutdown restored their risk appetite.
The Organization of the Petroleum Exporting Countries with Russia and other allies, or OPEC+, is unlikely to tweak its current oil output policy when a panel meets on Wednesday, as per sources as tighter supplies and rising demand lead to oil prices climb.
Why oil prices are climbing?
“Oil prices started the week on a strong note amid supply concerns with no policy change by OPEC+ expected, while the avoidance of a U.S. government’s shutdown over the weekend gave some relief,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.
“Still, whether or not the market will rise further will depend on future demand trends,” he said.
A last-minute decision by Republican House of Representatives Speaker Kevin McCarthy to turn to Democrats to pass a short-term funding bill pushed the risk of shutdown to mid-November, meaning the U.S. federal government‘s more than 4 million workers can count on continued paychecks for now.
U.S. oil and gas rig count
The increasing supply fear has made the oil prices climb. Amplifying supply fears, the U.S. oil and gas rig count, an early indicator of future output, fell by seven to 623 in the week to Sep 29, the lowest since February 2022, energy services firm Baker Hughes (BKR.O) said in its closely followed report on Friday.
Brent is forecast to average $89.85 a barrel in the fourth quarter and $86.45 in 2024, as per a survey.
Caution over China
Meanwhile, investors remained cautious about the Chinese economy as the country’s factory activity expanded at a slower pace in September, a private-sector survey showed on Sunday, with sluggish external demand weighing on the outlook even as output increased.
The world’s second-largest economy is showing some signs of stabilizing after a flurry of modest policy measures, but the outlook is clouded by a property slump, falling exports and high youth unemployment, raising fears Imports in Asia has been low in August and September have been the lowest two months so far in 2023, according to LSEG data.
Low import of oil by Asia
There are two main reasons behind the lower imports, with the temporary factor being seasonal refinery maintenance, which starts in September and lasts through October.
The other factor behind lower crude imports in September is likely the oil prices hike, which gathered steam from July onwards after leading OPEC+ member Saudi Arabia said it would voluntarily cut its output by 1 million bpd.of weaker fuel demand.
Oil market update
Oil prices hike could be seen as Brent December crude futures rose 18 cents, or 0.2%, to $92.38 a barrel by 0037 GMT after falling 90 cents on Friday. Brent November futures settled down 7 cents at $95.31 a barrel at the contract’s expiry on Friday.
U.S. West Texas Intermediate crude futures gained 23 cents, or 0.3%, to $91.02 a barrel, after losing 92 cents on Friday.
Both benchmarks rallied nearly 30% in the third quarter on forecasts of a wide crude supply deficit in the fourth quarter after Saudi Arabia and Russia extended additional supply cuts to the end of the year leading to oil prices hike.
