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Oil Prices Set For Another Weekly Gain Despite Falling Back

Despite a sharp drop on Thursday, oil prices are set for another weekly gain as well as a monthly one driven by tight supply coupled with perhaps surprisingly resilient demand.

Bloomberg attributed the Thursday drop to technical resistance as well as speculation that Saudi Arabia may start rolling back the cuts if prices rose too high. Theoretically, that may be true. The question, however, is what level of prices would be too high to sustain with limited supply.

There was also concern about more rate hikes from the Fed that would dampen demand and pressure prices, although so far this year this has failed to happen despite a long string of rate hikes.

Meanwhile, prices began to stabilize earlier today in Asian trade, with Brent trading around $95 and WTI at $91.66 at the time of writing.

Reuters noted oil prices could end the week with a gain of 2%, driven by stronger demand from China and tighter supply in the United States, where the critically low level of inventories at Cushing have served as additional fuel for the price rally.

“We’re running out of oil – you can see how low storage is at Cushing,” Gary Ross, hedge fund manager at Black Gold Investors, told Bloomberg. “If we’re running out at Cushing, then we’re running out in Europe, because it relies on US exports. If the US exports less, then where is Europe going to get its oil from?”

In reality, there are plenty of places Europe can get oil from, as long as it pays the higher prices because all benchmarks are on the rise. And prices may continue higher into November, as suggested by Kpler’s Matt Smith.

“Waterborne exports in October are still likely to come in close to 4 million barrels a day,” Smith told Bloomberg. “The lagged impact of the tightening Brent-WTI spread means we may not see the full impact until November’s loadings.”

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Meanwhile, U.S. production is not rising fast enough. The EIA even saw it falling in the shale patch this month, although by a modest rate, meaning there is no alternative source of oil supply while Saudi and Russia keep a lid on theirs.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on September 29 2023 said:
    There is nothing standing now between Brent crude oil price and $100 a barrel. Prices are underpinned by a robust global oil demand, a tightening market, China’s record-breaking crude imports and an approaching imbalance in the market. Against such powerful bullish factors, it is very probable that we will see $100 oil in October.

    There is speculation that Saudi Arabia may start rolling back the cuts if prices rose too high. In fact weeks ago the Saudis said that they will supply Asian refineries with full orders. Why wait until October? Why not now taken advantage of Brent crude hitting $97 a barrel yesterday?

    What could delay them isn't worry about prices rising too high but production difficulties.

    Saudi Arabia has been sacrificing lucrative crude oil exports even when Brent crude rose to $85 a barrel in mid-July which is equal to their breakeven price of $83-$85 the Saudis need to balance their budget. Their revenue loses are now much bigger with Brent crude rising almost to above $97. There are reports that Saudi Aramco is seeking to acquire more international oil and gas assets. This suggests that Saudi Arabia is having production difficulties and is trying to bolster its declining production by acquiring foreign assets.

    I estimate that Saudi oil production amounts actually to 6.5-7.0 million barrels a day. They have been with drawing 3.0-3.5 mbd from their oil inventory to make up the 10.0 mbd they declare as their production.

    Since announcing the cut in June until today Saudi Arabia could in theory have added 273-318.5 million barrels to its inventory. This could enable it to ease its production cut but I have my doubts.

    On the other hand, if the cut is about production difficulties, then the Saudis won’t be able to replenish their oil inventory and therefore, their production cuts will become a permanent fixture of the global oil market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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