Oil prices made gains on Monday, reversing some of the losses seen on Friday, as investors turned their attention to a tightening global supply outlook and the successful avoidance of a U.S. government shutdown, which restored risk appetite in the markets.
Brent Crude Futures Rise
Brent December crude futures increased by 18 cents, or 0.2%, to reach $92.38 a barrel by 0037 GMT, rebounding from a 90-cent decline on Friday. The previous month’s Brent November futures settled down by 7 cents at $95.31 a barrel as the contract expired.
U.S. West Texas Intermediate (WTI) Crude
U.S. West Texas Intermediate (WTI) crude futures also saw gains, rising by 23 cents, or 0.3%, to hit $91.02 a barrel. This followed a 92-cent drop on the previous trading day.
Strong Q3 Performance
Both Brent and WTI benchmarks delivered strong performances in the third quarter, surging nearly 30%. This impressive rally was driven by forecasts of a substantial supply deficit in the crude market for the fourth quarter. These predictions came on the back of Saudi Arabia and Russia extending their additional supply cuts until the end of the year.
OPEC+ Staying the Course
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are unlikely to make any changes to their current oil output policy during their upcoming panel meeting on Wednesday. This is according to four OPEC+ sources cited by Reuters. The oil price rally continues to be fueled by tighter supplies and rising demand.
Market Sentiment and Government Shutdown Aversion
Hiroyuki Kikukawa, President of NS Trading, a unit of Nissan Securities, commented on the current market sentiment, stating, “Oil prices started the week on a strong note amid supply concerns with no policy change by OPEC+ expected, while the avoidance of a U.S. government shutdown over the weekend gave some relief.” However, Kikukawa noted that future market performance would hinge on demand trends.
Temporary Government Shutdown Avoided
A last-minute decision by Republican House of Representatives Speaker Kevin McCarthy to seek support from Democrats for a short-term funding bill has pushed the risk of a government shutdown to mid-November. This development provides temporary relief to over 4 million U.S. federal government workers who can continue to expect paychecks for the time being.
Supply Worries Persist
Adding to supply concerns, the U.S. oil and gas rig count, an early indicator of future production levels, fell by seven to 623 in the week ending September 29. This represents the lowest count since February 2022, according to a report by energy services firm Baker Hughes.
Analysts predict that Brent crude will average $89.85 per barrel in the fourth quarter and $86.45 in 2024, according to a survey of 42 economists compiled by Reuters.
Caution Amid Chinese Economic Outlook
Despite these positive developments, investors remain cautious about the Chinese economy. A private-sector survey revealed that China’s factory activity expanded at a slower pace in September, primarily due to sluggish external demand, even though output increased. The Chinese economy is facing challenges such as a property downturn, declining exports, and high youth unemployment, which could potentially impact fuel demand.