Oil futures experienced a slight downturn early Wednesday as investors eagerly awaited an official report on U.S. crude inventories. In line with expectations, Saudi Arabia reiterated its plan to extend a production cut of 1 million barrels per day until the end of the year.
Price Action
- West Texas Intermediate crude (CL00) for November delivery (CL.1) fell $1.68, or 1.8%, to $87.55 a barrel on the New York Mercantile Exchange.
- December Brent crude (BRN00), the global benchmark, dropped $1.62, or 1.9%, to $89.30 a barrel on ICE Futures Europe.
Market Drivers
Crude oil prices have recently retreated from the highs reached in 2023, with industry analysts attributing this pullback to profit-taking amidst growing concerns about the economic outlook. Treasury yields have also surged to levels not seen since the 2008 financial crisis, further contributing to the decrease in crude oil prices.
Nevertheless, the oil market is expected to maintain stability due to persistent worries about limited supplies. Saudi Arabia’s production cut, initially implemented in July and subsequently extended, has been identified as a key factor behind the ongoing oil rally.
In a brief statement posted on its official website, the Saudi Energy Ministry confirmed that the production cuts would continue until the end of the year. The statement, attributed to an official source, affirmed that Saudi Arabia would maintain a production level of 9 million barrels per day in both November and December.
Oil Prices Remain Strong despite Slowing Global Economic Activity
Introduction
While there is evidence of slowing global economic activity that will eventually lower demand, the current near-term outlook for oil prices remains strong. Several factors discussed below have contributed to a bullish trend, with experts predicting that prices will soon reach the $100 level.
Current Inventory Data
The American Petroleum Institute (API) recently reported changes in crude oil and fuel inventories. According to a reliable source citing the data, U.S. crude inventories decreased by 4.2 million barrels last week. Conversely, gasoline stocks rose by 3.9 million barrels, and distillates saw an increase of 300,000 barrels.
Cushing, Oklahoma Supply Update
Data released last week indicated a decline in crude oil supplies at the Nymex delivery hub in Cushing, Oklahoma. This decline led to a total supply of just under 22 million barrels, which is the lowest level since July 2022. Further details will be provided by the official inventory data from the Energy Information Administration on Wednesday morning.
Analyst Expectations
Analysts are anticipating a decline in crude oil supplies of approximately 1.4 million barrels for the week ending September 29th, according to a survey conducted by S&P Global Commodity Insights. Gasoline stockpiles are expected to remain unchanged for the week, while distillate inventories are forecasted to fall by 1.6 million barrels.
In conclusion, despite the prevailing evidence of global economic slowdown, the current technical outlook for oil prices remains strong. The recent decrease in U.S. crude inventories and the anticipated declines in distillate inventories support the near-term bullish trend. Experts believe that oil prices will soon reach the $100 level. Further insight will be provided by the official inventory data release on Wednesday morning.
