Oil prices inched higher on Monday, underpinned by a combination of factors including expectations of supply cuts by major oil producers and optimism surrounding the Federal Reserve's interest rate policy. The global crude market remains dynamic, with several key influences at play.
Brent crude November futures rose by a marginal 3 cents to USD 88.58 a barrel, while US West Texas Intermediate (WTI) crude October futures gained 9 cents to reach USD 85.64 a barrel at 0333 GMT. These modest gains followed last week's strong performance when both contracts reached their highest levels in over six months, marking a rebound after two weeks of weakening prices.
The anticipation of additional supply cuts from prominent oil-producing nations, particularly Russia and Saudi Arabia, has been a significant driver of crude oil prices. Russia's Deputy Prime Minister, Alexander Novak, recently confirmed an agreement with OPEC partners on parameters for ongoing export cuts, with official details of the cuts expected this week. Russia's commitment to reduce exports by 300,000 barrels per day in September, following a 500,000-bpd cut in August, is seen as a crucial move. Furthermore, Saudi Arabia is likely to maintain its voluntary 1 million bpd cut into October.
At a conference, Vitol's Chief Executive, Russell Hardy, commented on the global crude market, suggesting that refinery maintenance may lead to a less tight market in the next six to eight weeks. However, supplies of sour crude, which is in demand by complex refineries in various countries, are expected to remain tight due to the OPEC+ production cuts.
Economic factors also play a crucial role in oil price movements. In the United States, job growth gained momentum in August, but the unemployment rate increased to 3.8 per cent, and wage gains moderated. These developments are seen as indicators of a cooling labor market, reinforcing expectations that the Federal Reserve will avoid raising interest rates in the near term, which is viewed positively by the oil market.
In China, manufacturing activity unexpectedly expanded in August. This has alleviated some concerns about the economic health of the world's largest oil importer. Beijing's recent economic support measures, including deposit rate cuts and eased borrowing rules, have also contributed to support for oil prices.
However, investors continue to closely monitor the Chinese property sector, which has been a drag on the economy since the pandemic. Additional substantial measures may be necessary to stabilise this sector, with potential implications for oil demand.
(Inputs from Reuters)