September 6, 2023

Oil prices steady as markets shuffle back from supply jitters

September 6, 2023

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Oil prices held steady on Wednesday after rising over 1% in the previous session, on a stronger dollar and as investors remained firm after jitters arising from supply cuts from Saudi Arabia and Russia.

Brent crude futures were up by 10 cents to $90.14 a barrel at 1346 GMT. U.S. West Texas Intermediate crude (WTI) futures traded at $86.92 a barrel, up 23 cents.

Against a basket of currencies, the dollar was at 104.68, not far off the six-month high of 104.90 touched overnight. A stronger dollar can weigh on oil demand by making the fuel more expensive for holders of other currencies.

"The reason the market gave back half of the gains and is listless this morning is because within the language of the joint announcement there is a caveat that these cuts will be reviewed on a monthly basis," said John Evans of oil broker PVM.

"This flexibility add-in allows for wiggle room, but the market smells a taper," he said, citing conditions like anti-inflation battles in the U.S. and other countries, whether crude prices near $100 a barrel, or the effect on Saudi oil revenues.

A general view shows the oil refinery of the Lukoil company in Volgograd

Reflecting near-term supply concerns, front-month Brent futures had traded on Wednesday near 9-month highs at $4.13 a barrel above prices in six months. U.S. WTI futures' equivalent spread was as much as $4.88 a barrel, also hovering near nine-month highs.

Saudi Arabia and Russia on Tuesday extended their voluntary oil cuts to the end of the year, the former to the tune of 1 million barrels per day (bpd) and the latter by 300,000 bpd. These are on top of the April cut agreed by several OPEC+ producers running to the end of 2024.

Both countries will review their decisions monthly to consider deepening cuts or raising output depending on market conditions.

However, analysts warned that price rises could meet with obstacles as demand may dip when U.S. refineries enter their September-October maintenance period, while potentially higher supply from Iran, Venezuela and Libya could also weigh.

Research company IIR Energy said on Wednesday it expects U.S. oil refiners to increase available refining capacity by 274,000 bpd for the week ending Sept. 8.