Oil prices edge higher as markets weigh supply tightness, demand woes

By Arathy Somasekhar

HOUSTON (Reuters) -Global oil benchmark Brent crude traded marginally higher on Monday after flirting with $95 a barrel earlier in the session, as markets weighed concerns about demand against expectations of a supply deficit stemming from Saudi Arabia and Russia’s extended output cuts.

Brent crude futures rose 79 cents to $94.72 a barrel by 11:57 a.m. ET (15:57 GMT), while U.S. West Texas Intermediate crude futures were up $1.24 at $92.01.

Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman on Monday, warned of uncertainty about Chinese demand, European growth and central bank action to tackle inflation, and defended OPEC+ cuts to oil market supply.

Asked about Chinese demand, Prince Abdulaziz said the situation “is not bad yet.”

“The jury’s still out. This is the fundamental issue – the jury’s still out.”

Both benchmarks had risen over $1 per barrel earlier in the session as investors focused on Saudi Arabia and Russia’s 1.3 million barrels per day (bpd) of supply cuts, extended to the end of the year.

Brent and WTI have climbed for three consecutive weeks to touch their highest since November and are on track for their biggest quarterly increases since Russia’s invasion of Ukraine in the first quarter of 2022.

The Brent benchmark traded in overbought territory for a 7th straight session, while WTI traded in overbought territory for a 5th straight session.

The market was also are seeing some profit taking, said Dennis Kissler, senior vice president of trading at BOK Financial.

Saudi Arabia and Russia’s output cuts could lead to a 2 million bpd deficit in the fourth quarter and a subsequent drawdown in inventories could leave the market exposed to further price spikes in 2024, ANZ analysts said.

The question is whether the cuts will continue into next year “given the risk that higher prices must surely, at some point, stimulate US shale (oil output),” said Callum Macpherson, head of commodities at Investec.

Citi on Monday became the latest bank to predict that Brent prices could exceed $100 a barrel this year. Chevron Chief Executive Mike Wirth also said he thinks oil will cross $100 per barrel in a Bloomberg News interview.

China is a key risk because of its sluggish post-pandemic economic recovery, though its oil imports have remained robust.

A series of stimulus measures and a summer travel boom helped industrial output and consumer spending to rebound last month and Chinese refineries ramped up output, driven by strong export margins.

Eyes will also be on central banks this week, including an interest rate decision from the U.S. Federal Reserve.

The Bank of England is likely to hike interest rates once again this week, possibly the last hurrah for one of the most aggressive tightening cycles of the last 100 years as a cooling economy begins to worry policymakers.

(Reporting by Arathy Somasekhar in Houston, Natalie Grover in London and Florence Tan and Sudarshan Varadhan in Singapore; Editing by David Goodman, Timothy Gardner and Christina Fincher)