Oil Rallies on Resolution to Keep Supply Tight
Despite tension in the Middle East, the global prices of crude oil rose as members of the Organisation of Petroleum Exporting Counties and allies (OPEC+) supported the group’s move to maintain tight supply.
Market data for today showed that ICE Brent traded at $86.67 per barrel, up by 0.99% from the closing price of $85.82 a barrel on Wednesday. The American benchmark West Texas Intermediate (WTI) traded at the same time at $84.12 per barrel, up 0.75% from $83.49 per barrel.
Prices nosedived after Saudi Arabia announced that the Kingdom remains committed to helping stabilize oil markets by supplying extra barrels, according to the Saudi Press Agency. The American Petroleum Institute (API) announced late Wednesday its estimation of a build in US crude oil stockpiles of 12.9 million barrels against the market expectation of a rise of 1.3 million barrels.
A strong increase in inventory implies a fall in crude demand in the US, assuaging market concerns over falling demand. The US Energy Information Administration’s (EIA) data on oil stocks will be announced later on Thursday, and if the increase in stock levels is confirmed, prices are expected to decline.
Speaking on the sidelines of the Russian Energy Week in Moscow, Putin said on Wednesday that the coordination between OPEC and its allies would continue and signalled that a deal to limit supplies to global markets was permanent.
Midweek data showed that the oil market gave back more of its post-Israel attack gains yesterday with ICE Brent settling a little more than 2% lower on the day. This takes it back below US$86/bbl.
The risk premium continues to erode with the conflict largely contained to Israel and Hamas, according to ING commodities strategists.
Analysts said reports that the Iranian government was surprised by the Hamas attack may also ease concern that the US will enforce sanctions against Iran more aggressively, although there have been conflicting reports in recent days regarding Iran’s involvement.
Unlikely to help sentiment this morning are API inventory numbers, which show that US crude oil inventories increased by 12.94MMbbls over the week, ING commodities strategists said in a note.
Lower refinery run rates due to maintenance likely contributed to this build. Meanwhile, gasoline inventories are reported to have increased by 3.65MMbbls, while distillate stocks fell by 3.54MMbbls.
Falling distillate stocks from already low levels as we head into the winter will be a concern for the market. The more widely followed EIA report is expected to be released today. Naira Devaluation Deepens Economic Crisis in Nigeria
The EIA’s latest short-term energy outlook shows that US crude oil output is expected to grow by 1.01MMbbls/d YoY to a record 12.92MMbbls/d in 2023. This is 140Mbbls/d higher than the forecast from last month. Meanwhile, for 2024, supply growth is expected to be much more modest, growing by just 200Mbbls/d YoY to 13.12MMbbls/d.
Both the IEA and OPEC will be releasing their monthly oil market reports. Last month both reports highlighted a tightening market through until year-end, and we would expect little change in this view. #Oil Rallies on Resolution to Keep Supply Tight
