By Oil futures experienced a boost early on Monday, following the end of a seven-week streak of gains. The increase is primarily attributed to production cuts led by Saudi Arabia.
Price Action
- West Texas Intermediate crude for September delivery rose by 91 cents, or 1.1%, to $82.16 a barrel on the New York Mercantile Exchange.
- The global benchmark, Brent crude for October delivery, rose by 84 cents or 1%, to $85.64 a barrel on ICE Futures Europe.
- Additionally, September gasoline rose by 0.9% to $2.849 a gallon on Nymex, while September heating oil added 0.6% to $3.146 a gallon.
- September natural gas jumped by 3.4% to $2.638 per million British thermal units.
Market Drivers
Last week, WTI and Brent saw declines of more than 2%, marking the first weekly losses since June. These losses were partly due to concerns over China’s economy, particularly its property sector troubles. The rise of the U.S. dollar was also seen as a hindrance for crude oil and other commodities.
The recent rally of crude oil prices is mainly attributed to tightening supplies. In July, Saudi Arabia implemented a production cut of 1 million barrels a day, which is set to continue through September.
Furthermore, strong U.S. economic data has raised concerns that the Federal Reserve may need to increase interest rates more than anticipated and keep them at higher levels for an extended period. Last week’s government data showed a decrease in consumer fuel demand and a post-pandemic high in U.S. crude production.
According to analysts at Sevens Report Research, for oil prices to resume their summer rally, there will need to be substantial improvement in news flow. The fading hopes for a soft landing and rising concerns about the global economy have dampened expectations.
Oil Prices Rally as Saudi Arabia Leads Production Cuts
Fueling Optimism
In early trading on Monday, oil futures displayed a promising surge after the conclusion of a seven-week streak of gains. The reason behind this upward trajectory is primarily linked to the production cuts led by Saudi Arabia.
Price Action
- Prices for West Texas Intermediate crude (September delivery) experienced a notable increase of 1.1%, totaling 91 cents and reaching $82.16 per barrel on the New York Mercantile Exchange.
- The global benchmark, Brent crude (October delivery), also witnessed significant growth, rising by 1% or 84 cents to $85.64 per barrel on ICE Futures Europe.
- On Nymex, September gasoline rose by 0.9% to $2.849 per gallon, while September heating oil climbed by 0.6% to $3.146 per gallon.
- September natural gas displayed an impressive surge of 3.4%, reaching $2.638 per million British thermal units.
Analyzing Market Drivers
Last week, both WTI and Brent faced declines exceeding 2%, marking the first time since June that they experienced weekly losses. Notably, analysts attributed these losses partly to concerns surrounding China’s economic performance, particularly its ongoing troubles within the property sector. Furthermore, the strengthening of the U.S. dollar served as an additional headwind, impacting prices for crude oil and other commodities.
The recent rally in crude oil prices can be primarily attributed to increasingly limited supplies. To counter market saturation, Saudi Arabia implemented a substantial production cut of 1 million barrels per day in July. This reduction is anticipated to persist until September.
Concurrently, robust economic data from the United States has created apprehension that the Federal Reserve may need to adopt a more aggressive approach, potentially raising interest rates beyond the initial estimations and maintaining them at higher levels for an extended period. Recent government data indicated a decline in consumer fuel demand while revealing a post-pandemic peak in U.S. crude production, as highlighted by analysts at Sevens Report Research.
As they conveyed in a recent note, the analysts emphasized that substantial improvements in news flow are necessary for oil prices to regain momentum. However, fading hopes for a soft economic landing and growing concerns surrounding the global economy have dimmed expectations and must be carefully considered moving forward.
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