Oil prices saw an increase on Monday, despite earlier touching $95 per barrel, as expectations of a supply deficit, primarily due to extended output cuts by Saudi Arabia and Russia, as well as weaker shale production, outweighed concerns about demand.
Brent crude futures, the global oil benchmark, settled at $94.43 per barrel, up 50 cents, after reaching as high as $94.45. Meanwhile, U.S. West Texas Intermediate crude futures rose by 71 cents to $91.48.
Saudi Arabia and Russia recently extended their combined 1.3 million barrels per day (bpd) of supply cuts until the end of the year.
Additionally, U.S. oil production from major shale-producing regions is expected to decrease for the third consecutive month in October, reaching its lowest level since May 2023, according to the U.S. Energy Information Administration’s monthly report.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, defended OPEC+ cuts to oil supply, emphasizing the need for measured regulation in international energy markets to limit volatility. He also highlighted uncertainties related to Chinese demand, European economic growth, and central bank actions to combat inflation.
Brent and WTI crude prices have experienced three consecutive weeks of gains, reaching their highest levels since November. They are on track for their most substantial quarterly increases since the first quarter of 2022, following Russia’s invasion of Ukraine.
Both Brent and WTI crude benchmarks have been in overbought territory, with Brent being overbought for seven consecutive sessions and WTI for five.
While the market has witnessed some profit-taking, analysts from Citi have predicted that Brent prices could exceed $100 per barrel this year. Chevron’s Chief Executive, Mike Wirth, also expressed the belief that oil would surpass $100 per barrel.
The output cuts by Saudi Arabia and Russia could lead to a 2 million bpd deficit in the fourth quarter. A resulting reduction in inventories could leave the market susceptible to further price spikes in 2024, according to analysts at ANZ.
China remains a key risk due to its slow post-pandemic economic recovery, although its oil imports have remained robust. Stimulus measures and increased summer travel have contributed to the recovery in industrial output and consumer spending.
Central bank actions will be closely watched this week, including the interest rate decision by the U.S. Federal Reserve. Additionally, the Bank of England is expected to raise interest rates once more, marking a potential end to one of the most aggressive tightening cycles in the past century as concerns about a cooling economy grow among policymakers.
