News

Oil futures rise on expectations of supply tightening

James L. Flint

• October 02, 2023

Prices of oil futures started October on a positive note, with traders focusing on the expectation of a further tightening of supply.

Price action

• The West Texas Intermediate crude for November delivery rose by 0.9% to $91.60 a barrel on the New York Mercantile Exchange.
• The December Brent crude, the global benchmark, increased by 1% to $93.11 a barrel on ICE Futures Europe.
• November gasoline gained 1% to $2.424 a gallon.
• November heating oil was up 0.9% at $3.33 a gallon.
• Natural gas for November delivery dropped by 0.9% to $2.904 per million British thermal units.

Market drivers

WTI and Brent saw significant gains of more than 25% in the third quarter, with the U.S. benchmark reaching its highest close in almost 13 months last week. Brent also traded at its highest level since November.

Crude Oil Market Outlook: A Potential Shift in Output Policy?

Commodity analysts at ING, Warren Patterson and Ewa Manthey, are closely observing the crude oil market for any indications of a change in the group's output policy. Despite the recent strength in the market, they do not believe that the group will alter its current policy.

Over the past four months, crude oil prices have experienced a significant rally, with a focus on tightening supplies. This surge has been primarily driven by Saudi Arabia's decision in June to implement a voluntary production cut of 1 million barrels per day, starting in July. This cut has been extended until the end of the year.

However, the ING analysts suggest that there is a possibility that Saudi Arabia might consider easing its additional production cut. They point to China's official purchasing managers index reading for September, which indicated the first expansion in manufacturing activity in six months. Saudi Arabia has previously cited uncertainty over China's demand outlook as a factor influencing its decision to reduce production.

According to the analysts, this data provides some confidence in China's manufacturing sector, as the PMI for September returned to expansion territory for the first time since March. Additionally, the nonmanufacturing PMI remained in expansion territory throughout the month.

The market eagerly awaits any signals from Saudi Arabia regarding a potential shift in its output policy. Investors will carefully analyze these developments to gain insights into the future trajectory of crude oil prices.