Oil prices maintained their firm stance near the $90-per-barrel mark in New York on Wednesday, as a combination of factors, including dwindling global fuel supplies and heightened speculator interest, propelled hedge funds back into the oil market. This resurgence in oil prices is further underscored by the increasing bullish positions on West Texas Intermediate (WTI), reaching levels not seen since February 2022. Additionally, an uptick in key indicators within the nearest section of the futures curve signals a concerning scarcity of supply.
The recent announcement by Russia of a temporary ban on diesel and gasoline exports last week has had a cascading effect on fuel prices, causing them to surge. Simultaneously, the United States witnessed yet another drop in crude oil stockpiles during the past week, and inventories at the Cushing, Oklahoma storage hub hit critically low levels.
Meanwhile, in China, the world’s largest oil importer, preparations are underway for the Golden Week holiday commencing this Friday. This extended holiday period is anticipated to substantially increase demand for jet fuel, with over 21 million individuals expected to take to the skies during this eight-day span. This surge in air travel follows a previous record in air-passenger traffic in July and August.
The price of oil has been on an impressive ascent, posting a 25% gain since the end of June and setting the stage for the most significant quarterly rise since March 2022. This remarkable rally is primarily attributed to production cuts implemented by OPEC+ leaders, Saudi Arabia and Russia. As the price of oil inches closer to the $100-per-barrel threshold, discussions of the possibility of reaching this milestone are gaining traction. This uptrend in oil prices is concurrently mounting pressure on nations reliant on oil imports.
Arne Lohmann Rasmussen, Head of Research at A/S Global Risk Management, articulated, “We have long advocated for a balanced oil market. Given the underlying fundamentals, we believe the likelihood of a significant price regression has diminished. Consequently, we view the current level as a lucrative buying opportunity.”
With OPEC+ playing a pivotal role in steering the oil market towards its current state of diminished supply, the central question arises as to whether this upward trajectory in oil prices will persist or if profit-taking maneuvers will intervene to bring prices back to pre-summer levels. Having already accumulated substantial gains in the third quarter of this year, the future trajectory of oil prices hinges on the actions taken by oil producers and exporters.
The critical issue at hand is whether OPEC+ can maintain the present low supply levels, with oil prices poised near the $90 mark, hinging on decisions from influential industry figures. The broader question of OPEC+’s effectiveness in regulating the pricing and availability of this coveted commodity remains a matter of time.
Source: Bloomberg
