BNR – Oil prices surged on Monday as a tightening global supply counteracted prevailing uncertainty regarding global demand growth.
Brent crude rose by 61 cents, reaching $85.41 a barrel by 0649 GMT. However, US West Texas Intermediate (WTI) crude attained $81.88 a barrel, marking an increase of 63 cents.
After a 7-week consecutive winning streak, both front-month benchmark prices experienced a setback last week, recording a 2% weekly loss. This decline was triggered by the strengthening US dollar, bolstered by concerns over prolonged high-interest rates.
The global economy was further shadowed by China’s property turmoil, contributing to apprehensions about sluggish economic growth and oil demand.
Anticipated Tight Oil Balance Drive Upward Momentum
Warren Patterson, Head of Commodities Research at ING, highlighted the potential for upward momentum in oil prices. This is due to an anticipated tight oil balance for the remaining year. He noted the recent pause in the dollar’s surge, a factor that could offer some support to oil prices.
Oil prices exhibit an inverse relationship with the US dollar, making oil acquisitions less expensive for holders of other currencies.
In terms of supply, OPEC+ crude exports are poised for a second consecutive monthly decline in August. This is according to Stefano Grasso, Senior Portfolio Manager at 8VantEdge in Singapore. He referred to preliminary data from the ship-tracking company Kpler.
Oil Prices Impact China’s Reserves
Meanwhile, China, the world’s leading crude importer, is tapping into previously accumulated record inventories. The move is prompted by reduced purchases from refiners following supply curbs imposed by OPEC+.
Amidst this, Saudi Arabia’s exports to China in July witnessed a 31% contraction compared to June. Russia, however, offered discounted crude and maintained its position as China’s foremost supplier, according to Chinese customs data. Chinese refineries also elevated their exports of refined products in July, buoyed by robust export margins.
In the United States, Baker Hughes’ report indicated that the number of active oil rigs dipped by five to 520.