Oil prices extend gains after 3% surge amid tight supply concerns

US crude prices are trading at their highest since August 2022

Crude oil storage tanks at the Cushing oil hub in Oklahoma. Reuters
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Oil prices extended their gains on Thursday after surging more than 3 per cent the previous day as a large drop in US crude stocks stoked supply concerns in a tightening crude market.

Brent, the benchmark for two thirds of the world’s oil, was trading 0.73 per cent higher at $97.25 a barrel at 10.40am UAE time.

West Texas Intermediate, the gauge that tracks US crude, was up 0.84 per cent at $94.47 a barrel, the highest since August last year.

On Wednesday, Brent settled 2.76 per cent higher at $96.55 a barrel, while WTI closed up 3.64 per cent at $93.68.

“Crude prices are rising again after another inventory report reminded energy traders how tight the oil market has become,” said Edward Moya, senior market analyst at Oanda.

“Brent crude is now just over a few dollars away from the $100 price level, which could see further momentum buying if global leaders don’t do anything to try to jawbone prices down,” Mr Moya said.

US crude inventories, an indicator of fuel demand, fell by 2.2 million barrels last week to 416.3 million barrels, according to the US Energy Information Administration.

Analysts polled by Reuters were expecting a drop of 320,000 barrels in the week that ended on September 22.

Petroleum stocks rose by 1 million barrels last week, while distillate fuel inventories increased by 400,000 barrels during the same period.

Last week, Russia announced a temporary ban on gasoline and diesel exports in response to domestic shortages. On Monday, Moscow said it would lift the export ban on bunkering fuel for some vessels and diesel with high sulphur content.

Oil prices have gained about 35 per cent since falling to a low of $71.84 in June, with the International Energy Agency predicting a tighter-than-anticipated crude market on Opec cuts as China, the world’s second-largest economy, introduces stimulus measures to revive growth.

Opec members Saudi Arabia and Russia announced this month that they would extend supply cuts of a combined 1.3 million barrels per day to the end of the year.

“Despite a fairly hawkish US [Federal Reserve] meeting outcome, the oil market has been resilient and resisting the broader risk-off move seen in global markets,” said Ehsan Khoman, head of commodities, ESG and emerging markets research at MUFG.

“The recent market tightness coupled with Russia’s recent export ban … as well as record high global demand are the key reasons, in our view, for crude oil to remain supported.

“Low levels of storage will likely compound the existing supply tightness stemming from Opec supply cuts. Signs of restricted supplies are now reflected in fuel oil prices also – gasoline and diesel prices are hovering near seasonal highs despite slackening demand,” he said.

Brent is forecast to trade in the range of $90 to $100 a barrel over the coming months, before ending the year at $95, Swiss lender UBS said in a research note last week.

It does not expect Brent crude to move above $100 a barrel on a “sustained basis” as it would lead to higher US crude supply.

Meanwhile, Goldman Sachs has raised its 12-month Brent forecast to $100 a barrel from $93 and said that the benchmark was “unlikely” to sustainably exceed $105 next year.

The rise in energy prices is not expected to derail a soft economic landing for the US economy, the investment bank said last week.

“Most of the oil rally has probably taken place, measures of inflation expectations appear well anchored, and the Federal Reserve is focused on core inflation,” Goldman Sachs said.

Updated: September 28, 2023, 7:17 AM