Oil Prices Rise on Supply Tightening and Heating Oil Surge
LONDON (Reuters) – Oil prices showed signs of growth on Monday, driven by supply constraints reflected in decreased exports from Saudi Arabia and Russia, as well as robust heating oil prices. These positive factors outweighed apprehensions about global demand in light of elevated interest rates.
Brent crude managed a gain of 76 cents, bringing it to $85.56 per barrel by 1047 GMT. Meanwhile, U.S. West Texas Intermediate crude reached $82.1 per barrel, marking an 85-cent increase. The upcoming expiration of the September WTI contract on Tuesday prompted attention to the more active October contract, which rose by 78 cents to $81.44 per barrel.
Although both front-month benchmark prices ended a 7-week winning streak last week with a 2% weekly loss, concerns about China’s sluggish economic growth and the potential continuation of the U.S. interest rate hike cycle linger. Despite these challenges, the tight oil supply balance expected for the rest of the year offers room for higher prices, according to Warren Patterson, ING’s head of commodities research.
Furthermore, the dollar’s recent pause in strength contributes to support for crude prices. A weaker dollar makes oil more affordable for holders of other currencies, thereby spurring demand. The positive outlook is also underpinned by the strong pricing of heating oil, a focal point as the northern hemisphere approaches colder months, noted John Evans of oil broker PVM.
However, navigating the current landscape is akin to targeting a “flying insect with a bazooka,” considering the uncertainty around whether the heating oil surge’s bullish trend can either drive the oil market upward or merely anchor it amidst broader macroeconomic concerns, Evans added.
China, despite its economic struggles, leverages its record inventories built earlier in the year as refiners reduce purchases post-supply cuts by OPEC and Russia (OPEC+), which led global prices to exceed $80 per barrel. Notably, Saudi Arabia’s July shipments to China dipped by 31% from June, while Russia retained its role as the Asian giant’s principal supplier with its discounted crude, as per Chinese customs data.
“Unless there is a recession and demand slows or drops, OPEC+ is in control,” affirmed Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore. Amidst the challenges and fluctuations, the intricate interplay of supply, demand, and economic factors continues to shape the dynamic oil market.