Oil prices surge to highest quotations in 2023 amid supply concerns

By Onome Amuge.

Global oil prices jumped to their highest settlement price of 2023, following a ‘larger-than-expected’ slump in US crude inventories, raising concerns over a global supply crunch following OPEC output cuts.

Recent data by the U.S Energy Information Administration (EIA), showed a 2.17 million barrel drop in oil inventories in the past one week. The report also noted that crude inventories in Cushing, Oklahoma fell to 22 million barrels in the fourth week of September, declining by 943,000 barrels compared to the previous week.

As of Thursday morning,  Reuters reported that the U.S. West Texas Intermediate crude futures (WTI) were 85 cents higher  at $94.53 a barrel, after rising above $96 the previous day for the first time since August 2022.

On a similar note, Brent crude futures  rose 78 cents, or 0.8 per cent, to $97.33 a barrel after hitting levels not seen since November.

According to market reports,the fall in stocks follow production cuts totalling 1.3 million barrels a day to the end of the year announced by the  Organisation of the Petroleum Exporting Countries and allies (Opec+), driven by oil giants Saudi Arabia and Russia.

According to analysts, the recent output cuts by Opec+ countries and the decline in US stocks will likely keep prices elevated.

Craig Erlam, senior market analyst, UK & EMEA, OANDA,pointed out  that the market is extremely tight following a number of supply cuts from OPEC+ countries.

“I think what we’ve seen over the last week or so is a little profit-taking and the fact it’s already on the march higher is potentially a sign of how bullish traders still are,” Erlam said.

In another development,a recent report by BofA Global Research rprojected that Brent crude oil will average $96 per barrel in the fourth quarter of  2023.

According to the report,recent run up in refining margins is helping push Brent crude oil prices higher, together with deep production cuts from Saudi and Russia.

The research noted that as OPEC+ commits to curbing oil supply into year-end, it expects global oil stocks to decline by 70 million over the coming three months.

“Incremental volumes could help cap a further rise in oil prices, should OPEC+ politics and global geopolitics allow. Plus, positioning measured by CFTC data or our own CTA models suggests speculators are quite long oil already,” the report added.

Meanwhile, analysts at Standard Chartered predicted a further 1.3 million barrels per day fall in global inventories in Q4, following 2.1 million barrels per day of draws in the third quarter of the year.

The company said it sees ICE Brent averaging $93 per barrel in the fourth quarter of the year, $91 per barrel overall in 2023, and $98 per barrel overall in 2024.

“Lower inventories have already fed through into tighter spreads and usually also eventually feed through into higher volatility. Greater uncertainty over central bank and USD outlooks is also often a source of volatility, as are extremes in speculative involvement,” it added.