West Texas Intermediate Leads the Way
The West Texas Intermediate contract CL00, -0.11% has reached a significant milestone, surpassing $95 per barrel for the first time in a year. After rising 14 cents to $93.82, the contract hit a high of $95.03. This surge in prices has been predominantly fueled by dwindling inventories.
Brent Sets Global Benchmark
Brent BRN00, -0.23%, the global benchmark in oil prices, followed suit by climbing as high as $97.69.
Inventory Drop at Cushing Delivery Hub
According to the Energy Information Administration, crude stocks at the Cushing delivery hub in Oklahoma have decreased to just under 22 million barrels. Analysts at Saxo Bank have highlighted that this drop is approaching operational minimums and marks the lowest inventory level since the seasonal lows of 2014.
Physical Market Tightening Takes Center Stage
UBS analysts, led by Henri Patricot, emphasized that the focus of the market is shifting back to the tightening in the physical market. Despite concerns over a weakening risk appetite amidst broader market jitters, the squeeze in supply outweighs these worries.
Production Cuts by Saudi Arabia and Russia
Adding further pressure to the inventory shortage, both Saudi Arabia and Russia have extended their production cuts until the end of the year. This move is set to impact prices as we approach winter.
Uncertain Long-Term Uptrend
While worries about supply tightness may continue to drive prices higher in the short term, it remains uncertain whether this will lead to a sustained uptrend. A major factor that may influence demand is the economic challenges faced by China and Europe, the second and third-largest oil consumers in the world respectively. XM’s senior investment analyst, Charalampos Pissouros, suggests that these challenges may eventually be reflected in oil prices.