Oil prices continued their upward trajectory, marking the fourth consecutive session of gains, driven by growing worries about a supply deficit. Weak shale oil production in the United States, coupled with extended production cuts by major oil-producing nations like Saudi Arabia and Russia, has intensified concerns in the market.
Rising Prices:
U.S. West Texas Intermediate (WTI) crude futures climbed by 1.1% to reach $92.47 per barrel, while the global oil benchmark, Brent crude futures, increased by 0.61% to $95.01 a barrel. These prices now stand at 10-month highs, reflecting a steady upward trend over the past three weeks.
Shale Output Decline:
The U.S. Energy Information Administration (EIA) reported that U.S. oil output from key shale-producing regions is poised to hit a low of 9.393 million barrels per day (bpd) in October, a level not seen since May 2023. This decline represents a three-month consecutive fall, further exacerbating supply concerns.
Extended Production Cuts:
This surge in oil prices follows the recent decision by Saudi Arabia and Russia to extend their joint supply cuts by 1.3 million bpd until the end of the year, underscoring their commitment to stabilizing the market.
Risk of Overbought Territory:
Despite the bullish momentum, analysts from National Australia Bank caution that the oil market is entering overbought territory, making it susceptible to a correction. Volatility may be on the horizon, especially after significant speeches by Saudi Aramco CEO Amin Nasser and Saudi Arabia’s energy minister on Monday.
Changing Demand Outlook:
Aramco CEO Amin Nasser revised the company’s long-term demand outlook, now projecting global demand to reach 110 million bpd by 2030, down from the previous estimate of 125 million bpd.
Market Regulation and Uncertainty:
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman defended OPEC+ cuts, emphasizing the need for measured regulation to curb market volatility. He also expressed concerns about uncertainties related to Chinese demand, European economic growth, and central bank actions to combat inflation.
In conclusion, the oil market is currently witnessing a surge in prices due to a combination of factors, including declining shale output in the U.S., extended production cuts by major oil producers, and shifting demand projections. However, the market remains on edge, with potential corrections and uncertainties in the global economic landscape looming on the horizon.