Oil prices surged to their highest level in over a year during Asian trading hours, following a significant drop in crude stocks at a key storage hub.
Crude inventories in Cushing, Oklahoma, plummeted to a mere 22 million barrels in the fourth week of September, close to operational minimums, according to data from the U.S. Energy Information Administration (EIA).
This translates to 943,000 barrels compared to the prior week.
The U.S. West Texas Intermediate (WTI) rose to $95.03 per barrel during Asian trading hours, a peak not seen since August 2022 before settling at $94.61 per barrel.
Meanwhile, Brent crude oil, the international benchmark for Nigerian oil, rose by 1.05% to $97.56 per barrel.
Experts have attributed this rapid price escalation to the precarious situation in Cushing, with Bart Melek, Managing Director of TD Securities, stating, “Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022.”
Melek expressed concerns about the challenges of getting crude oil into the market if inventories continue to dip below these critical levels.
Predicting the future trajectory of oil prices, Melek suggested that prices could remain at elevated levels for the remainder of the year, especially if the global oil cartel, OPEC+, continues to enforce supply restrictions.
He noted that the global oil market is facing a “pretty robust deficit” on top of an already significant shortfall for this quarter due to OPEC’s production cuts.
Saudi Arabia, a key player in OPEC+, has extended its voluntary crude oil production cut of 1 million barrels per day until the year’s end, bringing its crude output to nearly 9 million barrels per day.
Russia has also pledged to continue its 300,000 barrels per day export reduction until December.
However, Melek added that, “We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”
Oil Prices Stable Amid OPEC+ Anticipation and Global Economic Concerns
Oil prices remained relatively unchanged on Thursday as investors awaited the outcome of an eagerly anticipated OPEC+ meeting, which could potentially result in deeper supply cuts in 2024.
Brent crude oil increased by 70 cents to $83.80 a barrel, while U.S. West Texas Intermediate crude inched up by 55 cents to settle at $78.41 a barrel.
The OPEC+ group, comprising the Organization of Petroleum Exporting Countries and allies like Russia, is scheduled to conduct virtual meetings on Thursday to discuss additional production cuts, potentially ranging from 1 million to 2 million barrels per day in early 2024.
Implementing these additional cuts may lead to an immediate surge in prices, but their long-term impact is viewed skeptically by industry experts.
Tamas Varga, an oil broker at PVM, expressed doubt about compliance and suggested that the global oil balance might be less tight than OPEC estimates.
Factors such as the latest U.S. commercial inventory data, revealing an unexpected increase of 1.6 million barrels, and persistently high interest rates in major economies could dampen oil demand.
Despite the surprise build in U.S. crude oil stocks reported by the Energy Information Administration on Wednesday, oil prices remained resilient, with investors focused on the OPEC+ meeting.
Adding to concerns about the demand side, China’s economic challenges persist, highlighted by recent factory data indicating contraction for the second consecutive month in November.
This economic backdrop adds a layer of uncertainty to the oil market, as China is a significant player in global oil consumption.
Investors are closely monitoring the OPEC+ decisions, and the outcome is expected to influence short-term oil prices, although underlying economic challenges continue to cast shadows on the broader outlook for the industry.
Oil Prices Hold Steady Ahead of Crucial OPEC+ Meeting Amidst Fed Rate Hike Signals
Oil prices maintained their significant gains as traders anticipate the outcome of a crucial OPEC+ meeting on supply while considering signals from the Federal Reserve regarding interest rate policies.
Global benchmark Brent hovered below $82 a barrel, having surged over 2% on Tuesday, while West Texas Intermediate traded under $77.
The OPEC+ meeting, scheduled for Thursday to set policies for 2024, is currently grappling with a dispute over output quotas for some African members.
The recent rise in crude prices is underpinned by a weakening dollar, with a Bloomberg gauge of the US currency reaching its lowest level since August.
Federal Reserve policymakers, including Governor Christopher Waller, have hinted at an impending pause in the series of rate hikes, contributing to the bullish sentiment in oil markets.
A softer dollar enhances the appeal of commodities for international buyers.
Yeap Jun Rong, a market strategist for IG Asia Pte in Singapore, commented on the interplay of factors, stating, “The US dollar was dragged lower on a build-up in dovish expectations, which was very much cheered on by oil prices.”
However, concerns persist about OPEC+’s ability to address the challenges in the oil market effectively.
Despite the recent gains, oil is on track for a consecutive monthly decline due to increased supply from non-OPEC countries, intensifying pressure on the cartel and its allies to consider more significant output cuts.
The International Energy Agency’s earlier assessment indicated a potential return to a global crude surplus in the coming year.
In the US, the American Petroleum Institute reported a 817,000-barrel decline in nationwide inventories last week, potentially marking the first drop in six weeks, pending confirmation from government data.
This development may add support to oil prices and impact the ongoing dynamics in the energy market.
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