Oil prices rebound on supply concerns after last week’s sell-off

Investors to keep a close eye on the US Consumer Price Index data due on Wednesday

An oil rig off the US Pacific coast. Crude futures dropped last week, despite Opec+'s decision to extend voluntary oil output cuts of 2.2 million barrels per day until the end of November. EPA

Oil prices rebounded on Monday as investors worried about weather-related disruptions to production, following a sharp decline on Friday on weak US jobs data.

Brent, the benchmark for two thirds of the world’s oil, rose 1.03 per cent to $71.79 a barrel at 3.59pm UAE time, while West Texas Intermediate, the gauge that tracks US crude, traded 1.15 per cent higher at $68.45 a barrel.

On Friday, Brent settled 2.24 per cent lower at $71.06 a barrel, WTI was down 2.14 per cent at $67.67 a barrel.

The US National Hurricane Centre reported on Sunday that a weather system in the south-western Gulf of Mexico is expected to strengthen into a hurricane before making landfall on the north-western US Gulf Coast.

The US Gulf Coast is responsible for more than half of the country’s refining capacity.

Oil prices ended lower last week after the US Labour Department reported that non-farm payrolls in the world’s largest economy increased by 142,000 in August, falling short of a FactSet estimate of 165,000.

However, the unemployment rate fell from 4.3 per cent to 4.2 per cent, in line with expectations.

Investors will keep a close eye on the US Consumer Price Index data due on Wednesday, analysts said.

“It is expected to show a further slowdown in the US headline inflation … a sufficiently soft data will keep the expectation of [US Federal Reserve] cuts on the table, but won’t move mountains, unless we see a big surprise to the upside,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The Fed has maintained the benchmark borrowing rate at 5.25 per cent to 5.50 per cent since July 2023 following an aggressive rate-increase strategy that began in 2022 to address a spike in inflation triggered by Russia's invasion of Ukraine.

Last month, Fed chairman Jerome Powell gave his strongest indication yet that US central bank is on the cusp of cutting interest rates, pointing to a decline in inflation and an “unmistakable” cooling of the American labour market.

“The time has come for policy to adjust. The direction of travel is clear,” he said during his keynote address at the Jackson Hole Symposium in Wyoming.

The Fed’s next policy meeting is scheduled for September 17-18.

Crude futures dropped last week despite the Opec+ decision to extend voluntary oil output cuts of 2.2 million barrels per day until the end of November.

Saudi Arabia, Russia, Iraq, the UAE, Kuwait, Kazakhstan, Algeria and Oman will pause the scheduled increases of 180,000 bpd in October and November, the supergroup of producers said last week.

The alliance of oil producing countries also said that further extensions and renewed cuts were both on the table, should market conditions demand them.

“Opec+ has been actively supporting the market for the past eight years and its cuts have become a crutch on which market participants now heavily rely,” BMI said in a report on Friday.

“With participants taking it as a given that the group will act when prices fall too far, moving the needle on Brent requires strong and surprising actions, such as renewed and deepening cutbacks,” the Fitch Group unit said.

Both Opec and the International Energy Agency are scheduled to publish their monthly oil market reports this week.