Oil prices retreat after hitting November high

September 04, 2023 (MLN): Oil prices fell on Monday after hitting their highest level since November on expectations of further output cuts by OPEC+ leaders.

Brent crude is currently trading at $88.26 per barrel, down by 0.49% on the day.

While West Texas Intermediate crude (WTI) is trading at $85.06 per barrel, down by 0.53% on the day.

Both contracts ended last week at their highest in more than half a year, after two previous weeks of losses.

"Crude oil prices have been primarily driven by the anticipation of additional supply cuts from major oil-producing nations, Russia and Saudi Arabia," said Sugandha Sachdeva, executive vice president and chief strategist at Acme Investment Advisors, as Reuters reported.

Sachdeva added, however, that the steady increase in U.S. oil production could limit further significant gains in price.

Russia had agreed with partners in the Organization of the Petroleum Exporting Countries (OPEC) on the parameters for continued export cuts Russian Deputy Prime Minister Alexander Novak said on Thursday.

An official announcement detailing the planned cuts is expected this week.

Russia has already said it will cut exports by 300,000 barrels per day (bpd) in September, following a 500,000-bpd cut in August.

Saudi Arabia is also expected to roll over a voluntary 1-million-bpd cut into October.

Speaking on Monday at the APPEC conference in Singapore, Vitol's chief executive Russell Hardy said the global crude market should become less tight in the next six to eight weeks because of refinery maintenance, but supplies of sour crude, with higher sulfur content, will stay tight.

"Because of the OPEC+ cuts, there's not sufficient supply (of sour crude) for all these complex refineries in India, Kuwait, Jizan, Oman, and China," Hardy said.

In the U.S., job growth gained momentum in August, but the unemployment rate climbed to 3.8%, and wage gains moderated, suggesting that labor market conditions were cooling and cementing expectations that the Federal Reserve will not put a further dampener on the economy by raising interest rates this month.

In China, manufacturing activity unexpectedly expanded in August, data from Caixin's manufacturing PMI survey indicated, reducing some of the pessimism about the economic health of the world's largest oil importer.

Beijing's economic support measures last week, such as deposit rate cuts at some of the largest state-owned banks and an easing of borrowing rules for home buyers, have also supported prices.

However, investors continue to await more substantial moves to prop up the embattled property sector, one of the main drags on the Chinese economy since it emerged from the COVID-19 pandemic.

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