Oil prices rose again on Wednesday, still supported by the prospect of an extension to Saudi and Russian cuts, with the move boosted by investment funds and their algorithms.
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The price of a barrel of North Sea Brent crude for delivery in November rose 0.62% to close at $90.60, a new high in almost 10 months.
The barrel of American West Texas Intermediate (WTI) due in October rose 0.98% to $87.54, also reaching its highest level since mid-November. This is the ninth consecutive positive session for WTI.
The market continues to digest simultaneous announcements by Saudi Arabia and Russia, which on Tuesday pledged to withdraw a total of about 1.3 million barrels per day from the market, including one million for the Saudis.
This represents about 1.3% of daily global oil consumption, in a market where demand would exceed supply even without this reduction, according to the International Energy Agency (IEA).
“The market was expecting a one-month extension like in August and September,” explains Daniel Ghali of TD Securities, “but the extension to December was a surprise.”
“The Saudis are committed to reducing global inventories,” JPMorgan analysts wrote in a note.
Other countries such as Venezuela and Angola have increased their production since the beginning of the year.
So far, the production cuts announced in October and April totaling 3.6 million barrels per day have had no lasting effect on prices.
For Daniel Ghali, this lack of initial impact justified the “overly pessimistic demand forecasts” at the beginning of the year. “The market feared disappointment in China, while activity indicators showed robust demand.”
But global appetite for black gold has accelerated, reaching a record high in June, according to the IEA, which expects another peak in August, giving operators confidence and fueling the barrel’s rise.
According to Daniel Ghali, the market is now also benefiting from a wave of buying investment funds triggered by algorithms.
“Crude oil technical trends have improved, which is not the case for industrial or precious metals,” the analyst continued, nor for agricultural commodities.
However, Daniel Ghali doesn’t see it going much further.
“It is not in the interests of the Gulf states for Brent to rise above $100,” he said, “and they have excess capacity” that can easily be mobilized to mitigate the price rise.