Oil prices rebounded on Thursday following reports that Saudi Arabia and Russia have extended production cuts.
These bullish sentiments managed to eclipse concerns regarding a softer economic growth trajectory and increasing inventories in the United States.
The International Energy Agency (IEA) reported on Wednesday that the decision by Saudi Arabia and Russia to extend their oil output cuts would likely result in a market deficit during the fourth quarter.
However, this optimistic outlook was momentarily dampened when a bearish U.S. inventories report led to a minor pullback in prices.
Tamas Varga, an oil broker at PVM, said, “That this genuinely bearish stock report only led to a brief temptation to sell speaks volumes and underlines the market mentality.”
According to Varga, the tightening oil balance is set to remain the primary price driver for the remainder of 2023.
Brent crude, against which Nigerian oil is priced increased by 83 cents or 0.9% to $92.71 per barrel while the U.S. West Texas Intermediate crude (WTI) recorded a gain of 70 cents, or 0.8% to settle at $89.22 a barrel.
Both of these benchmark indices had recently achieved 10-month highs on Wednesday prior to the release of a U.S. supply report, which subsequently revealed a surge in crude and refined product stocks, causing prices to dip.
Priyanka Sachdeva, a senior market analyst at Phillip Nova, emphasized that supply concerns continue to underpin oil prices, as producers steadfastly adhere to production restrictions.
In a report issued by the Organization of the Petroleum Exporting Countries (OPEC) just before the IEA’s announcement, solid demand forecasts were provided, along with a mention of a potential supply deficit in 2023 should production cuts be sustained.
ANZ Research analysts weighed in on the situation, stating, “The oil market looks decidedly tight over the next two to three quarters as supply constraints persist amid robust demand.”
Also, market participants are closely monitoring the European Central Bank’s interest rate decision, scheduled for later on Thursday. Analysts and investors had initially been leaning toward a pause in rate hikes. However, a recent Reuters report indicated that the ECB is poised to revise its inflation forecast for the next year to more than 3%, potentially bolstering the case for higher interest rates.
