Oil prices close in on $95 mark as crude supplies tighten

China's central bank trimmed the reserve requirement ratio for financial institutions for the second time this year

Crude storage tanks at Cushing, Oklahoma. Reuters

Oil prices edged higher on Monday and were trading close to $95 a barrel amid expectations of a large crude deficit in the fourth quarter and signs of economic recovery in China.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.67 per cent higher at $94.58 a barrel at 8.34am UAE time. West Texas Intermediate, the gauge that tracks US crude, was up 0.86 per cent at $91.55 a barrel.

On Friday, Brent settled 0.25 per cent higher at $93.93. WTI closed up 0.68 per cent at $90.77 a barrel.

“Oil prices are continuing to rally, up around 15 per cent over the last few weeks and still looking healthy. Opec+ cuts, alongside voluntary additional supply restrictions from Saudi Arabia and Russia, have created a very tight market,” said Craig Erlam, senior market analyst at Oanda.

“The rally is showing few signs of cooling. Unless the economic data deteriorates, we may be talking about $100 oil before long,” Mr Erlam said.

China’s industrial output rose 4.5 per cent last month from a year earlier, compared with a 3.7 per cent increase in July, the National Bureau of Statistics (NBS) said on Friday.

Retail sales, an indicator of consumption, rose by 4.6 per cent in August, up from a 2.5 per cent increase in July.

China's post-coronavirus economic recovery has lost momentum mainly as a result of a deepening property slump and weak consumer spending.

China, the world’s largest crude importer and second-largest economy, has announced a string of stimulus measures, including halving the stamp duty on stock transactions and easing mortgage rates.

Last week, the country’s central bank trimmed the reserve requirement ratio for financial institutions – the second time this year – by 0.25 percentage points to boost liquidity and support economic recovery.

On the supply side, the International Energy Agency has forecast a “significant” supply shortfall in the fourth quarter on Opec+ cuts.

The Paris-based agency expects a global oil demand growth of 1.5 million barrels a day in the second half of the year, compared with the first half, exceeding supply by 1.24 million bpd during that period.

Meanwhile, Opec has said it expects a supply deficit of 3.3 million bpd over the next three months.

Energy Aspects, a London-based data and intelligence provider, has lowered its forecast for Opec crude supply by 180,000 bpd in the fourth quarter and by 430,000 bpd in the first quarter of 2024.

“The decision by Saudi Arabia and Russia to extend voluntary production cuts throughout Q4 [fourth quarter] will help keep oil markets tight and draw down inventories,” Energy Aspects said in a research note on Wednesday.

Energy Aspects expects the production cuts to taper by 250,000 bpd a month from January to April next year.

“But, as the first quarter tends to be a period of seasonal global stock builds, the kingdom might adopt a more cautious timeline for raising output, which would reduce Opec supply further in early 2024.”