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Oil prices surge on mounting supply concerns

September 20, 2023 00:00:00

Oil prices jumped more than $1 on Tuesday, signalling a fourth consecutive session of gains as weak US shale output compounded supply concerns from extended production cuts by Saudi Arabia and Russia, reports Reuters.

Global benchmark Brent crude futures were up $1.24, or 1.31 per cent, to $95.67 a barrel by 1308 GMT. US West Texas Intermediate crude futures were up $1.92, or 2.1 per cent, to $93.40.

Prices have gained for three consecutive weeks, with both benchmarks reaching their highest since last year.

"This crude price rally apparently doesn't want to stop," said OANDA analyst Edward Moya. "The oil market will likely be tight throughout the winter."

Feeding those concerns, US oil output from top shale-producing regions is on track to fall to 9.393 million barrels per day (bpd) in October, the lowest since May 2023, the US Energy Information Administration said on Monday. That would be a third consecutive monthly fall.

Those estimates come after Saudi Arabia and Russia, as part of the OPEC+ producer group, this month extended combined supply cuts of 1.3 million bpd to the end of the year.

Some, however, believe that crude's price climb could be peaking.

"Oil's ascent into overbought territory leaves the market vulnerable to a correction," National Australia Bank analysts wrote, pointing to volatility after speeches on Monday by Saudi Aramco CEO Amin Nasser and Saudi Arabia's energy minister.

The Aramco CEO lowered the company's long-term outlook for global demand to 110 million bpd by 2030, down from a previous estimate of 125 million bpd.

Saudi energy minister Prince Abdulaziz bin Salman defended OPEC+ cuts, saying international energy markets need light regulation to limit volatility, while also warning of uncertainty over Chinese demand, European growth and central bank measures to tackle inflation.

Interest rate decisions are due this week from the central banks of the United States, Britain, Japan, Sweden, Switzerland and Norway.

This "will do nothing to calm nerves as the clash between considerably reduced supply and less than reassuring economic outlook continues", said PVM Energy analyst Tamas Varga.

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