Oil prices edged lower on Wednesday as investors remained cautious ahead of the release of key US demand data, with a strong US dollar discouraging traders of other currencies and raising concerns about the trajectory of global economies, despite the extension of supply cuts by Saudi Arabia and Russia pushing prices to multi-month highs.
International benchmark crude Brent traded at $89.30 per barrel at 11.26 a.m. local time (0826 GMT), a 0.83% loss from the closing price of $90.04 a barrel in the previous trading session on Tuesday.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $85.97 per barrel, down 0.14% from the previous session’s close of $86.09 per barrel.
Fears that global petroleum supply could tighten further grew after Saudi Arabia and Russia, the OPEC+ group’s largest producers, declared on Tuesday their intention to extend existing output restrictions until the end of 2023, with possible monthly modifications.
Saudi Arabia said that it would extend its production cuts of 1 million barrels per day (bpd) for another three months, covering October, November and December, while Russia followed suit, extending export curbs of 300,000 bpd for the same time.
‘These bullish moves significantly tighten the global oil market and can only result in one thing: higher oil prices worldwide,’ Rystad Energy’s Senior Vice President Jorge Leon told Anadolu in an e-mailed note.
Investors are now looking forward to the release of US crude oil inventory data from the American Petroleum Institute (API) later on Wednesday and the Energy Information Administration (EIA) on Thursday.
If a rise in US stockpiles is revealed, prices will continue to decline as a build in inventories signals bearish demand in the world’s largest oil-consuming country.
While it is hard to predict the impact of the Saudi and Russian supply cuts on inflation and the global economy, Leon said that higher oil prices will only increase the likelihood of more fiscal tightening, especially in the US, to curtail inflation.
