Oil futures traded mostly higher Monday after touching fresh highs for the year, as some traders bet that output cuts by major producers may lead to a supply deficit in the global market.
Price action
-
The front-month October West Texas intermediate contract
CL.1,
-0.25% CLV23,
-0.25%
rose 16 cents, or 0.2%, to $87.67 per barrel after trading as high as $88.15 on the New York Mercantile Exchange. -
November Brent crude
BRN00,
-0.04% BRNX23,
-0.04%
added 69 cents, or 0.8%, to $91.34 a barrel on ICE Futures Europe, following a rise to as high as $91.45. Both WTI and Brent crude are on track to notch fresh year-to-date settlement highs. -
Gasoline for October delivery
RBV23,
+2.76%
traded at $2.6878 per gallon, up 1.3%, while October heating oil
RBV23,
+2.76%
tacked on 2.2% to $3.3715 a gallon. -
October natural gas
NGV23,
+0.35%
climbed by nearly 0.7% to $2.622 per million British thermal units.
Market drivers
U.S. and global benchmark crude futures climbed over 2% last week, and U.S. prices have jumped close to 10% over the last two weeks, as Saudi Arabia announced it would extend a production cut of 1 million barrels a day through the end of the year, while Russia said it would also extend supply cuts.
“The fundamental focus of the oil market has shifted from demand — more specifically concerns that a slowdown in global growth will hurt consumer spending on refined products — to the supply side as Russia and Saudi Arabia caught markets off guard with their output cut extension announcements,” analysts at Sevens Report Research wrote in Monday’s newsletter.
Factoring in the extended cuts, “many forecasts reflect deepening supply deficits in physical markets into the end of the year and that, paired with another wave of speculators getting scared out of the market by the latest OPEC+ surprise, has resulted in the latest leg higher to fresh 2023 highs in oil,” they said.
Looking ahead, the path of least resistance is higher for oil right now, with WTI “fast approaching our initial upside target of $89 [a] barrel,” the Sevens Report analysts said. “However, we remain in the camp that the onset of a recession will derail the rally.”
Monthly oil reports are due this week, on Tuesday from the Organization of Petroleum Exporting Countries, and on Wednesday from the International Energy Agency.
U.S. inflation data due Wednesday has the potential to up-end a number of asset classes.
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