Oil prices extend gains towards $95 on tight supply

Global oil benchmark Brent crude approached $95 a barrel, driven by investors’ concerns about a potential widening supply deficit in the fourth quarter. This increase is notable, considering the recent upward trend in oil prices.

Brent crude futures rose by 47 cents to reach $94.40 per barrel, while U.S. West Texas Intermediate (WTI) crude futures increased by 79 cents to $91.56 per barrel, with WTI briefly climbing by more than $1 earlier in the session.

Both Brent and WTI crude prices have seen three consecutive weeks of increases and are currently at their highest levels since November. They are also on track to record their most significant quarterly gains since the first quarter of 2022.

Citi, a major bank, joined others in predicting that Brent prices could surpass $100 a barrel within the year.

Saudi Arabia and Russia extended their combined supply cuts by 1.3 million barrels per day (bpd) to the end of the year. This move could potentially result in a 2 million bpd deficit in the oil market during the fourth quarter, leading to inventory drawdowns and potential price spikes in 2024.

While supply dynamics are impacting prices, concerns about oil demand persist. China, a key driver of oil demand growth, is experiencing a slow post-pandemic economic recovery, despite robust oil imports. Economic progress in China is viewed as crucial for global oil demand.

Investors are also closely monitoring central bank decisions, including the upcoming interest rate decision from the U.S. Federal Reserve. There is a growing consensus that peak interest rates may be approaching, as inflationary pressures have been managed successfully. However, the timing of central bank rate cuts remains uncertain and could impact economic growth and oil demand.