Oil prices are slightly lower on Friday but are on track to gain 2% for the week. This increase is driven by tight U.S. supply and expectations of Strong Fuel Demand in China during the Golden Week holiday.
Brent December futures fell 14 cents to $92.96 per barrel, while Brent November futures dropped 38 cents to $95.00 per barrel before expiring on Friday. U.S. West Texas Intermediate crude (WTI) slipped 9 cents to $91.62 per barrel.
After a nearly 30% increase in prices this quarter, reaching their highest point in a year, analysts are waiting to see if Saudi Arabia, the top producer, will increase supply. ING Bank analysts noted that there is reluctance among participants to push prices much higher due to the market being overbought.
There is also speculation that OPEC+ and specifically Saudi Arabia may ease production cuts earlier than scheduled if prices continue to rise. A ministerial panel of OPEC+ is set to meet on Oct. 4.
National Australia Bank analysts believe that the upcoming OPEC meeting will provide an important update for the market, with a growing possibility that voluntary supply cuts by Aramco will be reduced.
Strong fuel Demand in China, coupled with improving macroeconomic data and the start of the Golden Week holiday, has limited price declines. ANZ analysts noted that the increase in international travel during the holiday is boosting Chinese oil demand.
Domestic travel is also expected to contribute to increased demand, with flight app Umetrip reporting that the average number of daily flights booked is a fifth higher than during Golden Week in 2019.
China’s factory activity is likely to stabilize in September, according to a RushHourDaily poll, indicating that the country’s economy is beginning to stabilize. This could further bolster oil demand. Official data is expected to be released on Saturday.
The U.S. economy maintained a solid pace of growth in the second quarter, and activity appears to have accelerated in the current quarter. This suggests healthy fuel demand in the U.S.
Tight supplies in the U.S. are also supporting prices, with storage at Cushing, Oklahoma, already at its lowest level since July 2022.
Lower oil production in the U.S. due to falling rig counts, combined with record global demand, could push the market into a deficit of more than 2mb/d in the last quarter.
Overall, oil prices are experiencing slight declines but are still on track for a weekly gain. Tight U.S. supply and strong fuel demand in China during the Golden Week holiday are the main drivers behind this trend. Analysts are closely watching for any potential changes in supply from Saudi Arabia and the upcoming OPEC+ meeting.
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