Oil prices showed slight declines in Asian trading on Monday as traders awaited key central bank meetings scheduled for the week. However, the potential for a tighter oil market due to ongoing supply cuts by major oil-producing nations kept prices near 10-month highs.
In late Asian trade, Brent oil futures for November delivery experienced mild profit-taking, falling 0.3% to $94.03 per barrel, while West Texas Intermediate (WTI) crude futures, now trading under the November contract, stood at $90.22 per barrel. The September WTI contract had settled at $90.77 per barrel on the previous Friday.
Both Brent and WTI contracts have maintained levels close to their highest points since November 2022, recording over 30% gains over the past three months primarily driven by supply cuts led by Saudi Arabia and Russia.
Saudi Arabia and Russia recently announced that their cuts of 1.3 million barrels per day (bpd) would continue until the year-end, setting the stage for a tight outlook in oil markets.
However, Monday saw some profit-taking in oil prices amid concerns about a potential U.S. government shutdown due to disagreements among top Republican lawmakers over defense spending. U.S. lawmakers have a two-week deadline to vote on a fiscal spending bill, and a failure to do so could lead to a partial government shutdown.
Central Bank Focus:
This week’s central bank meetings, including the two-day Federal Reserve meeting beginning on Tuesday, are a key focus for traders. While the Fed is expected to keep interest rates unchanged, it is likely to maintain a hawkish outlook, particularly in light of recent inflationary pressures.
Expectations of prolonged higher interest rates in the U.S. may exert pressure on the country’s economy, which could impact its demand for oil. Additionally, U.S. fuel demand is projected to cool in the coming months, especially with the conclusion of the summer season.
The outcome of the Fed meeting will also influence the direction of the U.S. dollar, which was trading close to a six-month high on Monday. A stronger dollar could weigh on oil markets.
Other central banks in focus this week include the Bank of England (BOE), the People’s Bank of China (PBOC), and the Bank of Japan (BOJ). The BOE is expected to raise interest rates by 25 basis points, while the PBOC and BOJ are anticipated to maintain their current rates. However, any signals regarding future monetary policy, especially from the BOJ, will be closely monitored.
In China, the PBOC is expected to keep its loan prime rates unchanged as it strives to strike a balance between supporting economic recovery and preventing further weakness in the yuan.
Positive economic indicators from China, the world’s largest oil importer, have provided some support to oil markets. Last week, better-than-expected readings on industrial production and retail sales for August, along with the PBOC’s reduction of reserve requirements for Chinese lenders, have contributed to optimism about improved economic conditions.
