ISLAMABAD: Oil prices have made a notable recovery, reaching their highest point in more than six months, putting an end to a two-week period of declines. This upswing in prices is predominantly attributed to the increasing anticipation of a supply shortage in the global oil market.
Saudi Arabia, a prominent OPEC member, is expected to prolong its self-imposed oil production reduction of 1 million barrels per day into October. This decision underscores the ongoing efforts of OPEC and its partner nations in the OPEC+ coalition to support and strengthen oil prices through supply constraints.
Russia joins OPEC+ in oil export reduction
Moreover, Russia, the second-largest global oil exporter, has officially announced its commitment to reducing oil exports next month, as confirmed by Deputy Prime Minister Alexander Novak. These joint actions taken by significant oil-producing countries have instilled confidence among traders and investors.
The international benchmark, Brent crude, recorded a significant surge of $1.66, representing a 1.9% increase, resulting in a closing price of $88.49 per barrel. At one point during the session, it even reached a high of $88.75 per barrel, a level that hasn’t been observed since January 27.
WTI reaches $85.02
Similarly, U.S. West Texas Intermediate crude (WTI) saw a significant rise of $1.39, roughly 1.7%, closing at $85.02. It reached an intraday peak of $85.81 per barrel, the highest since November 16.
Throughout this week, Brent crude posted a remarkable gain of approximately 4.8%, marking its most substantial weekly increase since late July. In contrast, WTI advanced impressively by 7.2%, marking its most significant weekly gain since March.
Analyst Phil Flynn from Price Futures Group observed, “There is a growing recognition that the economy is not on the verge of collapse, and indicators suggest that demand is nearing record levels. People are coming to terms with the fact that supplies are below average.”
In the United States, the appetite for oil remains robust, with commercial crude inventories decreasing in five out of the past six weeks, as reported by surveys conducted by the U.S. Energy Information Administration.
Additionally, a closely watched U.S. report released on Friday disclosed an increase in the unemployment rate and a slowdown in wage growth, further reinforcing expectations of a pause in interest rate hikes.
Global Demand Recovery Sparks Hope, Yet Supply Concerns Linger in Oil Market
Amidst these developments, optimism about a global demand recovery is on the upswing. The euro zone’s manufacturing decline is showing signs of easing, indicating a potential turnaround for the struggling factories in the region. Furthermore, an unexpected rebound in China’s economic activity has provided hope for export-dependent economies, as indicated by private surveys.
Both OPEC and the International Energy Agency are counting on China, the world’s largest oil importer, to stimulate oil demand growth for the remainder of 2023. Nevertheless, concerns persist due to the gradual pace of China’s economic revival.
Tamas Varga, an oil broker at PVM, cautioned, “The rest of this year is likely to bring supply shortages, partly due to reasonably healthy global consumption and partly because of Saudi Arabia’s commitment to maintaining a high price floor.” He warned that unless the Chinese economy experiences a confident resurgence in the coming year, sentiment in the oil market could sour.
As an indication of potential future supply trends, U.S. oil rigs remained steady at 512 for the week, holding at their lowest level since February 2022, according to energy services firm Baker Hughes.
With oil prices at their highest level in seven months and lingering supply concerns, the global energy landscape remains dynamic, impacting economies and markets worldwide.
