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Oil Markets Brace for Potential Resumption of Rally Amid Tightening Supplies

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Oil markets are maintaining their steady course as hedge funds double down on their bets that tightening supplies will reignite the recent rally, despite a slight pause last week.

West Texas Intermediate (WTI) gained 0.7% before settling just above the $90-per-barrel price level following the surge in hedge funds’ bullish positions on WTI, the highest since February 2022.

Brent crude oil, against which Nigerian crude oil is priced, appreciated by 0.53% to $93.76 per barrel.

JPMorgan Chase & Co. is also chiming in, joining the chorus of voices predicting an “oil supercycle.” Oil has surged by over 25% since the end of June, poised for its most substantial quarterly gain since March 2022. This robust performance is credited to supply restrictions implemented by OPEC+ heavyweights Saudi Arabia and Russia, alongside brighter economic prospects in the US and China.

The market buzz is now dominated by discussions of the elusive $100-a-barrel crude, which could have ripple effects, increasing pressure on importing nations.

Analyst Zhou Mi from the Chaos Research Institute in Shanghai remains optimistic, emphasizing Saudi Arabia’s ongoing output cuts and solid demand from both China and the US.

Meanwhile, the physical market echoes these sentiments. Russia’s recent ban on diesel and gasoline exports has already elevated fuel prices, while US crude stockpiles continue to dwindle. The oil market’s backwardated structure further underscores strong competition for immediate supplies.

China is also gearing up for its Golden Week holiday, which is expected to boost jet fuel demand in the world’s largest oil-importing nation. With over 21 million people anticipated to take to the skies during this extended break, the momentum in the air travel sector appears to be continuing.

Saudi Arabia’s Foreign Minister, Faisal bin Farhan, highlighted the role of OPEC and its allies in stabilizing energy markets, underscoring their commitment to ensuring market equilibrium during a recent United Nations speech.

As the world watches these market dynamics unfold, the future of oil prices remains uncertain but decidedly intriguing.

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Crude Oil

Libyan Oil Field and Gas Link to Italy Reopen After Protesters Withdraw

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Following a brief interruption, operations at an oil field in western Libya and a natural gas link to Italy have resumed as protesters retreated from the facilities.

The demonstrators withdrew after receiving assurances from the government regarding their demands.

The Wafa oil field, which typically produces between 40,000 to 45,000 barrels per day, recommenced shipments after a temporary halt prompted by guards’ demands for improved compensation.

Similarly, the gas pipeline connection to Italy is once again operational, according to sources familiar with the situation who preferred anonymity due to the sensitivity of the matter.

Protests disrupting energy infrastructure and output are not uncommon in Libya.

In recent times, demonstrations have frequently disrupted operations, with the significant Sharara oil field experiencing prolonged suspension last month due to similar protests, invoking a force majeure clause in contracts.

The resumption of activities marks a relief for both the Libyan energy sector and Italy, which heavily relies on the natural gas link for its energy needs.

However, the incidents underscore the ongoing challenges faced by Libya in maintaining stability within its vital energy infrastructure amidst socio-political unrest.

Efforts to address the grievances of protesters and ensure sustained operations remain pivotal for the country’s economic well-being and regional energy dynamics.

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Oil Prices Dip on Monday as Dollar Gains

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Oil prices experienced a downturn, extending losses from the previous session as the U.S. dollar surged against global counterparts to impact market sentiment.

Brent crude oil, against which Nigerian oil is priced, slipped by 0.2% to $81.48 a barrel while U.S. West Texas Intermediate crude (WTI) declined by 0.3% to $76.27 a barrel.

The upward trajectory of the dollar renders oil more costly for holders of other currencies, contributing to the decline in oil prices.

This downward trend follows a week of losses, with Brent declining approximately 2% and WTI falling over 3%.

Market participants attribute these fluctuations to concerns about inflation potentially delaying anticipated cuts to high U.S. interest rates. Such expectations have been suppressing global fuel demand growth.

Analysts observe a retreat in the risk-on sentiment, coinciding with heightened expectations of prolonged interest rates.

Tina Teng, an independent analyst based in Auckland, notes that the recent market rally led by Nvidia has stalled, as elevated rate expectations bolster the U.S. dollar, thereby pressuring commodity prices, including oil.

Despite geopolitical tensions such as the Israel-Hamas conflict and attacks on ships in the Red Sea, which could have traditionally boosted oil prices, the impact remains modest.

Moreover, investors are monitoring developments surrounding Russian oil supply following recent U.S. sanctions on Moscow’s leading tanker group.

Amidst these uncertainties, Qatar’s decision to increase liquefied natural gas production further adds to global energy supplies.

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Crude Oil Dips Slightly on Friday Amid Demand Concerns

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On Friday, global crude oil prices experienced a slight dip, primarily attributed to mounting concerns surrounding demand despite signs of a tightening market.

Brent crude prices edged lower, nearing $83 per barrel, following a recent uptick of 1.6% over two consecutive sessions.

Similarly, West Texas Intermediate (WTI) crude hovered around $78 per barrel. Despite the dip, market indicators suggest a relatively robust market, with US crude inventories expanding less than anticipated in the previous week.

The oil market finds itself amidst a complex dynamic, balancing optimistic signals such as reduced OPEC+ output and heightened tensions in the Middle East against persistent worries about Chinese demand, particularly as the nation grapples with economic challenges.

This delicate equilibrium has led oil futures to mirror the oscillations of broader stock markets, underscoring the interconnectedness of global economic factors.

Analysts, including Michael Tran from RBC Capital Markets LLC, highlight the recurring theme of robust oil demand juxtaposed with concerning Chinese macroeconomic data, contributing to market volatility.

Also, recent attacks on commercial shipping in the Red Sea by Houthi militants have added a risk premium to oil futures, reflecting geopolitical uncertainties beyond immediate demand-supply dynamics.

While US crude inventories saw a slight rise, they remain below seasonal averages, indicating some resilience in the market despite prevailing uncertainties.

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