By Nicholas Earl
Oil markets have consolidated last week’s hefty gains, with growing expectations of a widening supply deficit this year after both Russia and Saudi Arabia extended their pledged output cuts.
Further gains were recorded across both major benchmarks in today’s trading — with Brent Crude rising 0.88 per cent to $94.76 per barrel, while WTI Crude has climbed 1.26 per cent to $91.91 per barrel.
This follows three consecutive weeks of gains, with prices rising 15 per cent to their highest levels since last November — with markets on track for the biggest quarterly increase since Russia’s invasion of Ukraine in February 2022.
OPEC and its allies such as Russia, known as OPEC+, have sustained output cuts representing more than five per cent of the market, north of 5m barrels per day.
Leading member Saudi Arabia and Russia have both extended their additional supply cut pledges —representing 1.3m oil barrels per day — until the end of the year.
Callum Macpherson, head of commodities at Investec, believed the $100 milestone was potentially in play with prices breaking free of trading ranges established amid this year’s market conditions.
However, he believed the sustained supply deficit could stimulate US shale output to meet Western demand.
He told City A.M: “The question is whether the Saudis end the cut early and, if they don’t, whether anything happens at the scheduled termination at the end of December. Saudi Aramco sets its prices at the start of each month and that would be the natural time to make an announcement of an early end or reduction to the cuts, if it felt the market was overheating.
Craig Erlam, senior market analyst at Oanda, regarded the latest oil rally as “relentless”, and did not see any signs of stalled momentum.
“Saudi Arabia and Russia have been very effective in squeezing a tight market that much further to create a situation in which oil prices are trading well above the zone they’ve been stuck around for much of the year. You would imagine there’ll be a limit to their ambitions, not to mention their desire to continue the additional voluntary cuts but that may well depend on the demand side over the coming months,” he said.
Looking ahead, he noted that the cartel’s plans for next year could be established in the OPEC meeting due on November 26.
There also remain other potential buffers to runaway oil prices, such as sluggish demand in China — with the world’s largest consumer posting mixed economic data since it lifted pandemic restrictions earlier this year.
The focus will now be on whether Beijing’s stimulus measures could further boost demand, with fresh data expected later this week.
