Oil prices saw a rebound on Thursday following a previous session’s decline, with the market’s attention shifting back to the outlook for tighter crude supply throughout 2023. Robust demand forecasts for the coming year further contributed to the positive sentiment.
Brent crude futures advanced by 54 cents, equivalent to 0.6%, reaching $92.42 per barrel at 0630 GMT. Simultaneously, U.S. West Texas Intermediate crude (WTI) also climbed by 54 cents, or 0.6%, reaching $89.06.
The market’s growing concerns over insufficient supplies are underpinning oil prices, primarily driven by producers’ adherence to production restrictions, as explained by Priyanka Sachdeva, senior market analyst at Phillip Nova.
The decision by Saudi Arabia and Russia to extend oil output cuts until the end of 2023 is expected to result in a substantial market deficit in the fourth quarter. This perspective was affirmed by the International Energy Agency (IEA), which largely maintained its demand growth estimates for this year and the next.
However, the agency also noted that a lack of production cuts at the beginning of 2024 would shift the market balance towards surplus, though stocks would remain at uncomfortably low levels.
In another update, the Organization of the Petroleum Exporting Countries (OPEC) retained its forecasts for strong growth in global oil demand for 2023 and 2024.
ANZ Research analysts weighed in on the situation, stating, “The oil market looks decidedly tight over the next two to three quarters as supply constraints persist amid robust demand.” They also anticipate geopolitical risks and an uncertain economic environment could lead Saudi Arabia to continue the production cuts into the first quarter of 2024.
It’s worth noting that both Brent and WTI benchmarks reached 10-month highs on Wednesday before concerns emerged regarding a surprise build in U.S. crude and fuel inventories, leading to worries about demand.
According to the latest data, U.S. crude inventories unexpectedly increased by 4 million barrels last week, contrary to analysts’ expectations of a 1.9 million-barrel decrease. Additionally, fuel inventories rose more than anticipated as refineries increased their activity.
On the economic front, the latest U.S. inflation reading has strengthened expectations that the Federal Reserve will not raise interest rates in the upcoming week and could prolong its pause. This stance is viewed as positive for the oil market, as higher interest rates could impact borrowing costs for businesses and consumers, potentially slowing economic growth and reducing oil demand.
