Oil prices have experienced a rise, with market focus shifting towards a tighter supply outlook, mainly due to Moscow’s announcement of a temporary ban on fuel exports. However, investors remain cautious about potential further interest rate hikes, which could potentially dampen oil demand.
Brent crude futures recorded an increase of 69 cents, equivalent to 0.7%, reaching $93.96 per barrel as of 0646 GMT, following a marginal 3-cent decline on the previous Friday.
Meanwhile, U.S. West Texas Intermediate crude futures extended their gains for a second consecutive session, trading at $90.57 per barrel, up 54 cents, or 0.6%.
Analyst Tony Sycamore from IG Markets stated, “Crude oil prices have started the week on the front foot, as the market continues to digest Russia’s temporary ban on diesel and gasoline exports, into an already tight market, offset with the Fed’s hawkish message that rates will stay higher for longer.”
Last week, both crude contracts saw declines, breaking a three-week winning streak, as a hawkish Federal Reserve stance affected global financial sectors and raised concerns about oil demand.
The previous three weeks had witnessed oil prices surge by more than 10%, primarily due to forecasts of a significant crude supply deficit in the fourth quarter, following Saudi Arabia and Russia’s extension of additional supply cuts until the end of the year.
Concerns about low product supply, especially for heating oil as the Northern Hemisphere approaches winter, arose after Moscow temporarily banned gasoline and diesel exports to most countries to stabilize the domestic market.
Vandana Hari, founder of oil market analysis provider Vanda Insights, commented, “The Russian fuel export ban news appears to be priced in for the time being but the undercurrent of global oil supply tightness runs deep, with an intense focus on diesel shortages and fears over unanticipated LNG supply disruptions likely to persist, especially in the European markets.”
In the United States, despite higher prices, the number of operating oil rigs fell by eight to 507 last week, marking the lowest level since February 2022, as reported in the weekly Baker Hughes report.
Market sentiment has been boosted by expectations of improved economic data from China, the world’s largest crude importer. Analysts at Goldman Sachs anticipate that China’s manufacturing sector will return to expansion mode in September, with the Purchasing Manufacturing Index forecasted to rise above 50 for the first time since March.
In addition, China’s oil demand increased by 0.3 million barrels per day (bpd) to 16.3 million bpd last week, partly attributed to a gradual recovery in jet fuel demand for international flights, according to Goldman Sachs analysts. Nonetheless, analysts have highlighted technical resistance for oil prices at the November 2022 highs reached last week.
