Oil prices are within touching distance of the $100 milestone, with underwhelming levels of shale production in the US adding to concerns of global supply shortages.
Both major benchmarks posted their fourth consecutive sessions of price gains, with Brent Crude up 1.49 per cent to $95.84 per barrel, while WTI Crude soared 2.35 per cent to $93.63 per barrel in this afternoon’s trading.
This follows a three week rally which has positioned oil prices at ten month highs.
US oil output from shale producing regions is set to decline to around 9.4m barrels per day (bpd) next month, according to the US Energy Information Administration, its lowest levels since May 2023.
It is also the third month in a row Stateside shale production has declined, contributing to established fears of supply deficits caused by extended cuts from OPEC and its allies (OPEC+).
The world’s most influential fossil fuel cartel has committed to swingeing cuts representing roughly five million barrels per day – more than five per cent of global supplies – with leading member Saudi Arabia and ally Russia extending their own unilateral reductions.
Closer to home, motoring group RAC has warned motorists this latest surge in oil prices means they will be in “for a hard time at the pumps” – with the possibility of prices rising to 160p per litre.
The average price of a litre of petrol has already risen by 10p since the beginning of August to 155.5p, its most expensive level since mid-December last year – according to the group’s Fuel Watch data.
Both countries have now pledged to a combined supply cut of 1.3m bpd to the end of the year.
Yesterday, Saudi Arabia’s energy minister Prince Abdulaziz bin Salman on Monday defended OPEC+ cuts to oil supply, warning of risk factors to prices such as inconsistent Chinese demand, European growth and central bank action to tackle inflation.
There is also a raft of interest rate announcements expected this week across developed economies, including the UK, US and Japan – which could ease momentum in the current price rally.
Craig Erlam, senior market analyst at Oanda, argued that OPEC may have to rethink its strategy, with the pledged cuts now having a “significant impact on the price” – rather than merely rebalancing the markt.
“At a time when central banks are starting to see the light at the end of the inflation tunnel, $100+ oil will be incredibly unwelcome and unhelpful. I’m not sure there’s much economic sense in tipping the global economy into recession if OPEC+ persevered with these cuts, which makes me question how high the price will go and how sustainable it will be,” he said.
Bjarne Schieldrop, chief commodity Analyst at SEB, also believed the troubled economic climate made any future price rallies concerning.
He said: “The Chinese property market is struggling and global PMIs have been downhill since mid-2021 with many countries now contracting, sub-50 level. A deep concern for the health of the global economy and oil demand going forward is absolutely warranted. However, killing the global economy off while it is wobbling with an oil price of $110-120 per barrel or higher is of course not a smart thing to do either.