Oil prices surged on Monday, with Brent trading near $95 a barrel as markets grappled with tight supply fears triggered by Saudi Arabia and Russia’s output cuts, while greater optimism about a Chinese economic revival boosted prices.
International benchmark crude Brent traded at $94.48 per barrel at 11.03 a.m. local time (0803 GMT), a 0.59% gain from the closing price of $93.93 a barrel in the previous trading session on Friday.
The American benchmark West Texas Intermediate (WTI) traded at the same time at $90.61 per barrel, up 0.66% from the previous session’s close of $90.02 per barrel.
Both benchmarks climbed over 3% last week on tight global supply concerns and a positive demand outlook from China, the world’s biggest oil importer.
Alternative supplies outside the OPEC+ alliance have so far offset the output curbs of OPEC+ members by more than 2.5 million barrels per day (bpd) since the start of the year. The US and Brazil recorded export increases of 1.9 million bpd between January and August, according to data by the International Energy Agency (IEA).
However, the agency said the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter of 2023, although sanctions-battered Iran boosted output by around 600,000 bpd.
‘Unwinding cuts at the start of 2024 would shift the balance to a surplus. However, oil stocks will be at uncomfortably low levels, increasing the risk of another surge in volatility that would be in the interest of neither producers nor consumers, given the fragile economic environment,’ the IEA warned in its oil markets report released last week.
According to Daniel Hynes, a commodity strategist at Australia and New Zealand Banking Group, China’s resilient demand is reflected in local oil refiners, which cranked up processing to a record level last month.
‘Processing volumes hit 64.7 million tonnes in August, equivalent to 15.3 million bpd. This has been aided by strong summer demand for fuels such as diesel, as economic activity picks up,’ Hynes added.
He said that both the IEA and OPEC warned in their demand projections that the oil market would shift into a significant deficit until the year’s end.
‘The subsequent drawdown in inventories in the fourth quarter leaves the market exposed to further price spikes in 2024,’ Hynes noted.
