Oil prices extended their gains on Wednesday, hovering close to a 10-month high amid expectations of a larger supply deficit in the market than was previously estimated.
Brent, the benchmark for two thirds of the world’s oil, was trading 0.42 per cent higher at $92.45 a barrel at 4.22pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.42 per cent at $89.21 a barrel.
On Tuesday, Brent settled 1.57 per cent higher at $92.06 a barrel, the highest level since November 2022. WTI closed up 1.78 per cent at $88.84 a barrel.
In its monthly oil market report on Tuesday, Opec said it expected a supply shortfall of 3.3 million barrels per day over the next three months as Saudi Arabia extends its output cuts.
The group also stuck to its oil demand outlook for this year and next and said China’s recent stimulus measures would help to revive growth in the world's second-largest economy.
“The Opec monthly report showed the oil market is going to be a lot tighter than initially thought,” said Edward Moya, senior market analyst at Oanda.
“Heading into the Opec+ decision at the end of last month, expectations were for the global market to have a supply deficit of just over 1 million bpd. After the [announcement of the supply cuts] it was generally viewed that the supply deficit would be around twice that amount.”
Meanwhile, the US Energy Information Administration said global oil inventories were projected to fall by nearly 500,000 bpd in the second half of this year, resulting in higher prices for the rest of 2023.
In its Short-Term Energy Outlook released on Tuesday, the EIA forecast Brent crude prices of $93 a barrel in the fourth quarter of this year, up from a previous estimate of less than $88 a barrel.
The International Energy Agency will release its monthly oil market report later today.
Oil prices have been gaining since Opec+ members Saudi Arabia and Russia said they would extend supply cuts of a combined 1.3 million bpd to the end of the year.
As part of their voluntary cuts, the kingdom is extending its 1 million bpd output reduction until December, while Russia is rolling over its export cut of 300,000 bpd until the end of the year.
On Tuesday, Opec said its production is projected to grow by about 50,000 bpd to 5.44 million bpd this year, before rising further to 5.51 million bpd in 2024.
Opec members’ crude oil output rose by 113,000 bpd in August, compared with July, to 27.45 million bpd, the group said, citing secondary sources.
Meanwhile, Libya, Opec’s seventh-largest crude oil producer, has closed four major oil ports after Storm Daniel caused devastating floods in the country.
The oil ports – Ras Lanuf, Zueitina, Brega and Es Sidra – were closed from Saturday evening for three days, Reuters reported on Monday, citing two oil engineers.
The closure of the ports will lead to some export disruptions, but those exports are “likely” to recover once the ports re-open, Giovanni Staunovo, strategist at UBS, told The National on Tuesday.