Commodities Analysis by Investing.com (Barani Krishnan) covering: Brent Oil Futures, Crude Oil WTI Futures, Heating Oil Futures, ProShares UltraShort Bloomberg Crude Oil. Read Investing.com (Barani Krishnan)'s latest article on Investing.com
Oil prices are nearing the $90 mark, with strong momentum suggesting a potential push to break this threshold. Despite the approaching fall season, Saudi Arabia, Russia, and OPEC are cutting production to keep oil prices artificially high.
Analysts caution that consumer and global economic resilience should not be underestimated, and a prolonged push for higher oil prices may face challenges. The race is on for $90 oil. But summer, the season Americans like driving the most, is almost over and will wrap in less than three weeks when the fall season begins on Sept. 23. Typically, at this time of year, crude prices would retreat slightly, sometimes meaningfully, in tandem with lower demand in the world’s largest oil consumer. Not this time, maybe. The Arabs, who control much of the world’s oil exports, are fixated on getting to triple-digit pricing, something a barrel had not seen since August 2022, whenhovered above $105, after reaching nearly $140 in March that year after the Russian invasion of Ukraine. On Friday, the London-traded global benchmark for oil settled at a little below $89. New York-traded West Texas Intermediate, orIn Monday’s early trade in Asia, crude prices fell slightly. Most analysts think oil longs will not back off until Brent takes out the $90 target — with just a couple of dollars left, it appears the target is more academic than anything else — and US crude gets as close as possible to that level too. “That there is still plenty of momentum so close to $90 a barrel may suggest we could see a strong push to break above which would represent a big shift in the market dynamic in quite a short period of time,” analysts at Oanda wrote in a note.As said earlier, with the advent of fall or autumn, US driving activity will begin to lessen, and the deceleration will heighten as the weather gradually turns colder, heading into the winter months. The chill will, of course, bring its own attendant demand for heating. Even so, the period between now and late October/early November, known as the ‘shoulder season’ between end-summer and advanced fall, typically sees less demand for oil and, correspondingly, lower prices for crude. But the Saudis and Russians, and their allies in the Organization of the Petroleum Exporting Countries, or OPEC, are planning to cut as many barrels from production and exports as necessary to defy market norms. While demand is usually the driver for the pricing of anything, in this case, the Saudis and their allies are using supply to overwhelm the buying component in the oil market to skew the market balance in their way. The idea is to create such an artificially short supply that the trade simply cannot function in a normal way. Key to this is the one-million-barrels-per day in additional cuts, on top of other existing production rationing, that the Saudis have been carrying out since July. Now into its third month in September, almost everyone in the market expects the Saudis to take this into October as well — and possibly into the end of the year and maybe beyond in their obsession to get triple-digit pricing. Joining the Saudis in this quest appear to be the Russians, who, just a few months, seemed content in selling oil at any price to fund their war machinery against Ukraine. While the oil trade awaited news last week from Riyadh on the extension of the one-million-barrel-per-day cut into October, it was Russian Deputy Prime Minister Alexander Novak instead who told the media that OPEC+ will announce more “market actions” — a veiled threat that the Saudis will extend cuts for a fourth straight and probably the Russians will join too this time. “Everyone’s looking at the flat price of crude oil and saying gasoline and diesel prices will also go to the moon,” said John Kilduff, founding partner of New York-based energy hedge fund Again Capital. “But fuel uptake for this summer is still very much down to earth, higher than a year ago, yes, but still below pre-pandemic levels.” “You have an odd situation where the Saudis are trying to create a supply situation even lower than the seasonal lows in demand,” Kilduff continued. “All I’ll say is don’t test the mettle of consumers and the global economy because when either collapses, your dream of higher and higher prices will also go with that.” Technical charts for WTI also indicate that it may be reaching correction levels soon, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com. The US crude benchmark finished up 7.2% last week after a combined 4% drop over two prior weeks as the economy in oil top importer China sputtered. Prior to that, WTI gained 20% over seven weeks. Brent, meanwhile, rose 4.8% last week after a combined 2.3% drop over two prior weeks. Before that, the global crude benchmark rose for seven weeks in a row, gaining a total of 18%.
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