Oil Prices Set for Weekly Gain as Strong Holiday Demand Outweighs Supply Concerns
Oil prices are poised for a weekly gain of around 2%, driven by strong holiday demand from China and tight U.S. fundamentals. Despite expectations of possible supply increases from Saudi Arabia, Brent November futures rose 5 cents to $95.43 per barrel, while Brent December futures gained 13 cents to trade at $93.23 per barrel. U.S. West Texas Intermediate crude climbed 16 cents to $91.87 per barrel.
The market experienced a 1% dip in the previous session as traders took profits after prices reached 10-month highs. Some concerns were also raised about high interest rates potentially affecting oil demand. However, improving macroeconomic data from China, the world’s largest oil importer, coupled with strong fuel demand during the country’s week-long Golden Week holiday, supported prices.
Analysts from ANZ noted that an increase in international travel during the Golden Week holiday is boosting Chinese oil demand. Additionally, domestic travel is also expected to contribute to increased demand, with data from the flight app Umetrip showing a 20% rise in the average number of daily flights booked compared to Golden Week in 2019.
China’s factory activity is expected to have steadied in September, indicating a stabilizing economy that could further bolster oil demand. The U.S. economy also maintained a solid pace of growth in the second quarter, with activity appearing to accelerate this quarter, indicating strong fuel demand.
Tight supplies in the U.S. provided additional price support, with storage at Cushing, Oklahoma, already at its lowest level since July 2022. The combination of lower supply and record global demand of 103 million barrels per day may push the market into a deficit of more than 2 million barrels per day in the last quarter.
Traders are eagerly awaiting next week’s meeting of the Organization of the Petroleum Exporting Countries and allies (OPEC+) for indications on whether Saudi Arabia will increase supply in response to the nearly 30% jump in prices this quarter. However, analysts from ING Bank noted that participants may be reluctant to push prices higher due to overbought territory and potential concerns about OPEC+ easing cuts earlier than scheduled.
The OPEC+ ministerial panel meeting is scheduled for October 4, and it will provide a key update for the market. There is an increasing probability that the voluntary supply cuts by Aramco, Saudi Arabia’s national oil company, will be reduced.
In conclusion, oil prices are on track for a weekly gain as strong holiday demand from China and tight U.S. fundamentals outweigh concerns about potential supply increases. Traders are anxiously awaiting the OPEC+ meeting next week for further indications about the direction of the market.