Oil Market Closes Higher on Inventories Drop, Tight Supply

By Adedapo Adesanya

The oil market maintained its upright posture on Wednesday as traders anticipated further draws on crude oil inventory in the United States following extended production cuts in Saudi Arabia and Russia.

Brent crude futures increased by 56 cents to $90.60 a barrel, and the US West Texas Intermediate (WTI) crude futures were up by 85 cents to $87.54 per barrel.

Prices on Tuesday jumped to the highest since November after the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) heavyweights, Saudi Arabia and Russia, announced an extension of their respective production cuts.

Both countries extended voluntary oil supply cuts to the end of the year. The Saudi cuts were by 1 million barrels per day while Russia has cut 300,000 barrels per day. These were on top of the April cut agreed by several OPEC+ producers running to the end of 2024.

Both countries will review market conditions and make monthly decisions on deepening cuts or raising output.

Crude prices have now climbed about 30 per cent since mid-June mainly on lower global supplies.

Back in July, Saudi Arabia announced it would cut one million barrels a day, equivalent to around 10 per cent of its typical output while Russia’s voluntary cut is 300,000 barrels a day. Saudi Arabia’s reduction makes up more than a third of the total OPEC+ cuts.

Prices continued to find support midweek on expectations that US crude inventories fell by about 2.1 million barrels in the week to September 1.

Due to the Labor Day holiday in the US on Monday, the official data from the US Energy Information Administration (EIA) will confirm this on Thursday.

However, pressure came on fresh US Federal Reserve rate hike concerns and investor worries about the US economy after data showed the ISM non-manufacturing Purchasing Managers’ Index (PMI) came in at 54.5, compared with expectations of 52.5.

The US Dollar bested a basket of currencies and also weakened oil prices as the greenback index rose to a high of 105.00, above the previous six-month high of 104.90.

A stronger Dollar can weigh on oil demand by making crude more expensive for holders of other currencies.