Crude oil prices have surged globally, triggering fresh concerns about their potential impact on the world economy, especially as many nations grapple with high inflation rates. The price rally continued on Monday, driven by expectations of major oil producers further tightening supplies. Additionally, growing optimism that the US Federal Reserve would refrain from raising interest rates to avoid dampening the US economy also played a role.
Oil Prices Continue to Climb
At around 8 am, Brent Crude November futures saw an increase of 3 cents, reaching $88.58 per barrel, while US West Texas Intermediate crude (WTI) October futures rose by 9 cents, reaching $85.64 per barrel.
Supply Tightening by OPEC+
Sugandha Sachdeva, Executive Vice President and Chief Strategist at Acme Investment Advisors, highlighted that the anticipation of additional supply cuts from major oil-producing nations, specifically Russia and Saudi Arabia, has been the primary driver of crude oil price increases. However, Sachdeva also noted that the steady increase in US oil production could potentially limit further significant price gains.
Last week, Russian Deputy Prime Minister Alexander Novak confirmed that Russia had agreed with OPEC partners on the parameters for ongoing export cuts. OPEC+ is expected to announce the planned cuts this week. Russia had previously announced a cut of 300,000 barrels per day (bpd) in September, following a 500,000 bpd reduction in August. Similarly, Saudi Arabia is anticipated to reduce exports by 1 million bpd in October.
Impact of China and US Economic Data
Another contributing factor to the rise in crude oil prices is related to economic data from China and the United States.
China’s manufacturing sector surprisingly expanded in August, according to Caixin’s manufacturing PMI survey data. This unexpected growth has fueled optimism regarding the economic outlook for the world’s largest oil importer.
In the United States, Friday’s employment data exceeded expectations, revealing a gain of 187,000 jobs in the nonfarm sector for the previous month. This positive jobs report, despite a deceleration in job growth, has lowered the likelihood of immediate interest rate hikes by the Federal Reserve, as suggested by analysts.
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