The risk of tightening supplies sends oil prices higher

Oil prices rose again this week

Amid expectations of further supply cuts by Opec+ members and tightening supplies across the US, shrugging off mixed economic data from China.

Brent crude was trading above $86 per barrel at the time of writing and West Texas Intermediate was changing hands at close to $84 per barrel, two days after the U.S. Energy Information Administration reported another massive draw in oil inventories, at 10.5 million barrels for the second to last week of August.

That inventory draw followed another recently reported one of 17 million barrels, which contributed to a perception of strong, resilient demand for crude in the world’s largest consumer of the commodity. To date, crude inventories in the U.S. are at the lowest since last December.

This perception undermined fears among traders that sluggish economic growth in the biggest oil markets in the world would affect global demand negatively, helped by positive economic data from the U.S. Even China’s latest PMI reading did not pressure prices, possibly because while the overall figure was in the contraction zone below 50, several important sub-readings were above 50, indicating growth.

Meanwhile, OPEC+ is meeting next week to discuss its next moves and analysts expect the production cuts to remain unchanged and get extended for another month as the group seeks sustained higher prices.

"We continue to expect cuts to be extended, with prices above US$90/bbl (on a sustained basis) required to draw OPEC supply back to market, as well as incentivize U.S. shale producers to increase drilling activity," the National Australia Bank said in a note, cited by Reuters.

Russia has already said it would extend its export cuts for another month, which also contributed to this week’s price gains and now traders anticipate an identical move by Saudi Arabia with regard to its production.

Fuel card users can expect a small increase in the region of .60 pence per litre as we head into the first month of Autumn.


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