Oil prices rise on tighter supply, strong demand

September 14, 2023 (MLN): Oil prices continued to rise on Thursday as the market weighed on both a tighter crude supply outlook and a strong demand forecast for the rest of 2023.

Brent crude is currently trading at $91.99 per barrel, up by 0.31% on the day.

While West Texas Intermediate crude (WTI) is trading at $88.46 per barrel, up by 0.30% on the day.

Fears of deficient supplies are underpinning oil prices as producers "adamantly stick to restricted production", said Priyanka Sachdeva, senior market analyst at Phillip Nova, as Reuters reported.

Saudi Arabia and Russia's extension of oil output cuts to the end of 2023 will mean a substantial market deficit through the fourth quarter, the International Energy Agency (IEA) said on Wednesday, as it largely stuck by its estimates for demand growth this year and next.

The lack of cuts at the start of 2024 would shift the balance to a surplus, the agency said, though it added that stocks will be at uncomfortably low levels.

Elsewhere, the Organization of the Petroleum Exporting Countries (OPEC) on Tuesday retained its forecasts for robust growth in global oil demand in 2023 and 2024.

"The oil market looks decidedly tight over the next two to three quarters as supply constraints persist amid robust demand," said analysts at ANZ Research.

"We expect ongoing geopolitical risks and the uncertain economic backdrop to lead Saudi Arabia to maintain these production cuts into Q1 2024," they added.

Both benchmarks touched 10-month highs on Wednesday before data showed a surprise build in U.S. crude and fuel inventories that worried markets about demand.

U.S. crude inventories rose by 4 million barrels last week. Additionally, fuel inventories also rose more than expected as refiners stepped up activity.

On the economic front, the latest reading of U.S. inflation bolstered expectations the Federal Reserve will not raise interest rates next week and could extend its pause further, buoying hopes of strong oil demand.       

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

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