Global oil prices fluctuated yesterday at the start of trading, before climbing back up as demand concerns and economic uncertainty continue to weigh on energy markets.
Prices were down about 20% since early June, giving up gains from highs reached in March owing to Covid-19-related movement restrictions in China — affecting about 65 million citizens — as well as further interest rate increases in the US and Europe, agency reports said.
Brent, the benchmark for two thirds of the world’s oil, was trading 1.35 per cent higher at $94.09 a barrel at 6pm UAE time. It has dropped from its near-$140-a-barrel high in March following the start of Ukraine war and is now up about 18 per cent since the start of the year.
West Texas Intermediate, the gauge that tracks US crude, was up 1.29 per cent at $87.91 a barrel. “The barrel of American crude trades near the $85 per barrel as high energy prices hit the prospects of economic growth and global demand,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“An overall bullish sentiment in equity markets could help oil consolidate gains, but strong resistance is seen near the $90 mark.”
In a research note on Monday, strategists at UBS said that while the lender stills holds a positive outlook on crude prices, it has reduced its December oil forecast by $15 per barrel. UBS had previously projected a rebound in oil to $125 a barrel in the last quarter of this year.
“We still believe that the oil market will tighten and prices will rise over the coming quarters,” UBS said.
The rise in prices will come as a result of the end of sales from OECD countries’ strategic oil reserves, the lender said. That will remove more than 1 mbpd of supply from November onwards.
UBS said while OECD commercial inventories increased by 33 million barrels between December and June, commercial and government inventories have fallen by more than 103mb over this period, “indicating an undersupplied market”.
The lender also expects oil demand to be bolstered globally by its increasing use to generate electricity, reflecting the rising price or reduced availability of gas and coal.
The halting by the European Union of Russian waterborne crude imports by December 5 and refined products by February 5 will provide further support for oil prices, UBS said.
Russia has continued to boost its exports to countries such as China and India, the world’s largest energy importers, even as the US and the UK ban imports of its crude in response to its military offensive in Ukraine.
Last week, Russian President Vladimir Putin warned that his country would not supply energy to countries that back a proposed price cap by the US and Europe on Moscow’s crude in response for its war in Ukraine.
“The risk of some supply disruptions over the next few months remains elevated and that should help oil prices stay above the $90 a barrel level,” said Edward Moya, a senior market analyst at Oanda.
The face-off with Russia has exacerbated inflationary pressures in European countries and put major currencies such as the euro, sterling and yen under pressure.
Last week, the European Central Bank raised its key interest rates by 75 basis points to tame record inflation.
The US Federal Reserve raised interest rates by 75 basis points in its past two meetings to bring inflation down from a 40-year high.
The Fed is expected to increase rates further when it meets from September 20 to September 21.
In a report on Monday, Abu Dhabi Commercial Bank said the OPEC+ 23-member alliance of producers could take further steps to cut output if oil prices remain under weakening pressure.
ADCB cited the meeting of OPEC+ earlier this month in which the group indicated it will stand ready to hold an unscheduled meeting to address market developments, even before the planned October 5 meeting if necessary.
At its last meeting this month, the OPEC+ alliance agreed to cut its October output by 100,000 barrels per day, reverting to August production levels in a bid to support prices, in the face of a slowing global economy, potential demand headwinds and a potential Iran nuclear deal that could bring more crude to the market.
Saudi Arabia’s energy minister Prince Abdulaziz bin Salman, said the group’s “decision is an expression of will that we will use all of the tools in our kit”.
He also said that the group “will be attentive, pre-emptive and proactive in terms of supporting the stability and the efficient functioning of the market”.
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