Global oil prices experienced a significant surge on Monday, briefly flirting with the $95 per barrel mark, as the market grapples with anticipation of a supply deficit. This supply crunch is primarily attributed to extended production cuts by major oil-producing nations, Saudi Arabia and Russia, outweighing concerns about global demand.
Brent crude futures saw an increase of 50 cents, settling at $94.43 per barrel, after briefly hitting $94.45. West Texas Intermediate (WTI) crude futures also witnessed a rise, climbing 71 cents to reach $91.48.
This latest rally in oil prices follows Saudi Arabia and Russia's recent decision to extend their combined supply cuts, amounting to 1.3 million barrels per day (bpd), until the end of the year. This move further tightened the oil supply market.
Adding to the supply constraint, the US Energy Information Administration released a monthly report indicating that oil production from key shale-producing regions in the United States is expected to decline for the third consecutive month in October. This would bring it to its lowest level since May 2023, contributing to the supply squeeze.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, defended the cuts imposed by OPEC+ to stabilise the oil market, emphasizing the need for a measured approach to regulation in order to curb market volatility. However, he also expressed concerns about the uncertainties surrounding Chinese demand, European economic growth, and central bank actions to address inflation.
Both Brent and WTI have experienced three consecutive weeks of gains, reaching their highest levels since November. Moreover, they are poised to record their most substantial quarterly increases since the first quarter of 2022, coinciding with Russia’s invasion of Ukraine.
Citi joined the chorus of banks predicting that Brent prices could surpass the $100 per barrel threshold later this year. This sentiment was echoed by Chevron Chief Executive, Mike Wirth, who also believes that oil prices are headed for the $100 mark.
China remains a key risk factor in the equation due to its sluggish post-pandemic economic recovery. However, despite these economic challenges, China's oil imports have remained robust, providing some support to the oil market.
The global oil market continues to navigate a complex landscape marked by supply constraints, geopolitical tensions, and economic uncertainties. As such, oil prices are expected to remain highly volatile in the coming months as market players closely monitor developments both domestically and internationally.