Oil Prices Soar as Tight Supplies Outweigh Demand Fears
By Adedapo Adesanya
Oil prices were in positive territory on Monday, as worries of tight supplies outweighed fears that global demand could slow due to a strong US Dollar and possible significant increases in interest rates.
Brent crude rose by 65 cents or 0.7% to trade at $92 a barrel, while the U.S. West Texas Intermediate (WTI) expanded by 62 cents or 0.7 per cent to $85.73 per barrel.
A British public holiday for the funeral of Queen Elizabeth limited trade volume during London hours on Monday.
Prices were boosted on indications of a supply problem as the Organisation of Petroleum Exporting Countries and allies led by Russia, known as OPEC+, fell short of its oil production target by 3.583 million barrels per day in August, an internal document showed. In July, OPEC+ missed its target by 2.892 million barrels per day.
In August, the two biggest laggards in production quotas were Russia of the non-OPEC group and Nigeria of OPEC, the data showed. Russia’s oil production was 1.25 million barrels per day below its target, while Nigeria was 700,000 barrels per day behind its quota.
Russia’s output is constrained by the Western sanctions following the Russian invasion of Ukraine, while Nigeria has had troubles for years with a lack of investment and oil theft.
The underperformance in September will be even higher because the group lifted its collective target by 100,000 barrels per day. This increase will be reversed in October, OPEC+ decided at a meeting earlier this month.
Analysts noted that the surveys of OPEC+ production being so far below their quotas for August has the market feeling that they are simply unable to increase their production if the market demands.
This took away worries that central banks worldwide will increase borrowing costs this week to tame high inflation.
There are indications of some risk of a total one percentage point rise by the US Federal Reserve.
Oil also came under pressure from hopes of an easing of Europe’s gas supply crisis. German buyers reserved capacity to receive Russian gas via the shut Nord Stream 1 pipeline, but this was later revised, and no gas has been flowing.
The US Dollar stayed near a two-decade high ahead of this week’s decisions by the Fed and other central banks. A stronger greenback makes dollar-denominated commodities more expensive for holders of other currencies and tends to weigh on oil and other risk assets.
The market has also been pressured by forecasts of weaker demand, such as last week’s prediction by the International Energy Agency that there would be zero demand growth in the fourth quarter.