Oil markets are benefitting from robust demand, with trading on both major benchmarks at a near four month-high amid declining US inventories and swingeing OPEC cuts to supplies.
Brent Crude is up 0.94 per cent, trading at $85.71 per barrel, while WTI Crude has climbed 0.98 per cent to $82.17 per barrel in this morning’s trading – despite demand concerns across many developed economies.
Relative global shortages in supply appear to be outweighing demand concerns in challenging economic conditions, after US oil inventories fell 15.4m barrels last week, according to American Petroleum Institute figures first cited in Reuters.
If government figures, due out later, match the industry drawdown number, it would reveal the largest drop in US crude inventories since records began in 1982.
This follows consistent expectations from the International Energy Agency and OPEC in their forecasts that supplies would tighten over the second half of the year.
Crude oil inventories have started to slide in other regions, with OPEC member Saudi Arabia unilaterally overseeing a further 1m barrels per day of cuts – which is now expected to continue into September.
“At the same time, production cuts from Saudi Arabia continue to impact the global oil supply. With demand from the world’s two largest consumers of crude set to increase and the leading global exporter cutting production, oil prices continue to find support as traders’ price-in a scenario of tighter supply and growing demand,” said Ricardo Evangelista, senior analyst at ActivTrades.
With China’s economy set for a revival amid huge stimulus packages from government, and the US Federal Reserve signalling its battle with inflation is nearly over, there is now also the possibility demand could rebound – which could drive up prices.
However, there could be some turbulence before any price rallies, with China releasing weak PMI data, showing that fuel demand may still be weaker than expected from the session’s price gains.
“Chinese crude buying has been opportunistic rather than due to higher demand. (The) market continues to be driven purely by supply constraints, which are always subject to potential political volatility,” said Sparta Commodities’ Philip Jones-Lux.