Continued supply constraints sent crude prices higher for a second consecutive week, particularly after Saudi Arabia and Russia said this week they would extend a 1.3 million barrel a day supply cut through the end of the year.
West Texas Intermediate on the New York Mercantile Exchange rose three of four trading days in a Labor Day-shortened week. Prices started off trading gaining $1.14 Tuesday, followed by an 85-cent rise that sent prices above $87 a barrel Wednesday. Prices eased 67 cents Thursday before regaining their footing and adding 64 cents Friday to close the week at $87.51, up 2.3% for the week and up from $85.55 at last Friday’s close. The posted price ended the week at $83.99, according to Plains All American.
Natural gas futures had a down week, opening trading with an 18-cent plunge Tuesday, followed by another 7-cent drop Wednesday. Prices then turned upward, rising 7 cents Thursday. Henry Hub futures then added 2.7 cents Friday to end the week at $2.605 per Mcf, down from $2.765 at last Friday’s close.
Tim Waterer, chief market analyst at KCM Trade, noted that oil prices had relinquished some ground Thursday but momentum remained on the upside given OPEC+ has demonstrated a willingness to pull back supplies through the end of the year to support prices.
“However, there are two possible obstacles to the bullish-oil outlook. One being further Chinese economic contraction, and two being further upside in the US dollar,” he wrote. “But taking the ‘glass half full’ approach, if these two obstacles eventually fall by the wayside, then we could be looking at even more room to the upside for the oil market.”
Edward Moya, senior market analyst, the Americas with Oanda, said supplies continue to drive crude prices.
“No one is doubting that OPEC+ will keep this market tight going into the winter. Before the OPEC+ decision, the global market was set for a supply deficit of just over 1 million barrels a day in the fourth quarter. That deficit will likely be closer to 2 million barrels a day and will be able to overcome global growth concerns that stem from both China and Europe,” he wrote in his daily newsletter.
He added that oil prices look like they want to keep the rally going and could do so if further evidence emerges China’s economy is stabilizing. A weakening of the US dollar could also provide price support, he noted.
Production cuts from OPEC members have also boosted sour crude prices, according to the US Energy Information Administration.
The agency reported that the production cuts are limiting the availability of medium and heavy sour grades of crude, contributing to a relatively higher price for those grades while also putting upward pressure on WTI and Brent, the global benchmark crude.
Light, sweet crude oils typically trade at a premium compared with sour crude oils because they are less costly to refine and tend to produce higher yields of more valuable products. Sweet and sour crude oil price spreads have narrowed in most major trading hubs, including those in North America, Europe, and the Middle East. The spread between the price of medium, sour Mars crude oil and the light, sweet Magellan East Houston has declined since late 2022, and Mars was sold at a small premium briefly in July.
The extent and duration of the current market dynamics, with sour crude oil prices trading unusually high, remain uncertain, the agency reported.
Read More: Supply constraints send oil prices higher for second week