Oil prices experienced a reversal on Wednesday following a 1% rise in the previous session. Investors appeared unfazed by concerns arising from supply cuts from Saudi Arabia and Russia, with a strong dollar acting as a limiting factor.
Brent crude oil, against which Nigerian oil is priced, dipped by 9 cents to $89.95 per barrel while the U.S. West Texas Intermediate crude (WTI) traded at $86.60 per barrel, also down 9 cents.
The dollar, measured against a basket of currencies, held steady at 104.69, not far from its six-month high of 104.90 reached overnight. A robust dollar can dampen oil demand by increasing costs for holders of other currencies.
Analysts at Rystad Energy and ING Economics anticipate that the output cuts from OPEC+ will result in a more substantial-than-expected deficit throughout the fourth quarter of 2023, bolstering oil prices.
Nevertheless, ING Economics hesitated to revise price forecasts upward, citing lingering demand concerns amid an increase in Iranian supply.
“Iran is currently producing approximately 3.1 million barrels per day (bpd) and has plans to raise production to around 3.4 million bpd. Meanwhile, our oil balance indicates a minor surplus in the first quarter of 2024, which could restrain any significant price increases,” noted ING Economics analysts in a recent report.
Reflecting short-term supply worries, front-month Brent futures hovered near nine-month highs, trading at $4.13 per barrel above prices for delivery in six months.
Similarly, for U.S. WTI futures, the spread between the front-month and the six-month contract expanded to as much as $4.5 per barrel on Wednesday, also nearing nine-month highs.
Saudi Arabia announced its decision to extend its voluntary oil output cut of 1 million bpd for another three months until the end of December 2023, according to the state news agency SPA, citing an energy ministry official.
In a parallel move, Russia prolonged its oil export reduction of 300,000 bpd until the end of the current year, as stated by Deputy Prime Minister Alexander Novak.
These Saudi and Russian cuts are in addition to the April cut agreed upon by various OPEC+ producers, which extends until the close of 2024.
Both countries have committed to monthly reviews to assess the potential for deeper cuts or increased output, depending on market conditions, according to statements from SPA and Novak.
Sugandha Sachdeva, Executive Director and Chief Strategist at Acme Investment Advisors, commented on these developments, stating, “The decision to prolong output cuts underscores their dedication to price stability in a challenging market environment.”
However, Sachdeva added a note of caution, highlighting the annual refinery maintenance period in the U.S. from September to October, which could limit crude demand and potentially act as a restraining factor on rising oil prices.
