Brent crude rises above $95/bbl on tight supply concerns

SINGAPORE (ICIS)–Brent crude prices rose above $95/bbl on Tuesday – the first time since November last year – while US crude jumped by more than $1/bbl amid concerns over tightening global supplies.

Both benchmarks were on their fourth session of gains.

($/bbl)	Contract	Low	High	Open	Last (at 04:25 GMT)	Previous Settlement	Change	High Change
Brent	Nov	94.48	95.14	94.66	95.13	94.43	0.7	0.71
WTI	Oct	92.18	92.55	92.22	92.54	91.48	1.06	1.07

Expectations of supply deficit stemming from extended output cuts by Saudi Arabia and Russia as well as weak shale production in the US outweighed concerns about demand.

Saudi Arabia and Russia earlier this month extended a combined 1.3m bbl/day of supply cuts to the end of the year.

US oil output from its largest shale-producing regions is expected to drop in October to 9.39m bbl/day, the lowest level since May 2022 and marking the third consecutive month of lower output, the US Energy Information Administration (EIA) reported on 19 September.

The International Energy Agency (IEA) has forecast an oil supply deficit of more than 1m bbl/day in the fourth quarter, although market players expect the shortfall to be as much as 2m bbl/day, leaving the market exposed to the possibility of oil prices hitting $100/bbl.

“The extension of output cuts by Saudi Arabia and Russia through year-end will lock in a substantial market deficit through Q4 2023,” the IEA said in its September Oil Market Report.

The cut to Saudi production is the steepest since the Global Financial Crisis in 2008, Oxford Economics said in presentation slides during an online webinar on Tuesday.

“The move can be seen as a hedge against a potential collapse in demand should downside risks materialise. At the same time Saudi Arabia has ambitious diversification plans that will need funding,” it said.

So far this year, the crude output of OPEC and its allies (OPEC+) has fallen by 2m bbl/day with overall losses tempered by sharply higher Iranian flows, according to the IEA.

The IEA also said that global oil inventories fell by 76.3m barrels in August, taking inventories to their lowest levels in 13 months.

As for demand, the IEA still believes that it will grow by 2.2m bbl/day this year, driven by China, the world’s biggest crude importer.

However, demand growth in 2024 is expected to slow to around 1m bbl/day with expectations of weaker global GDP growth.

“China is the key [demand] driver. Despite lacklustre industrial activity, demand has held up,” Oxford Economics said, adding that it expects world oil demand to expand by 1.7% this year before decelerating to growth of 1% in 2024.

“Weaker underlying economic activity and tighter monetary policy is weighing on demand. Increasing fuel efficiency and increasing use of electric vehicles will weigh on demand in 2024,” it added.

Focus article by Nurluqman Suratman