Supply Concerns Trigger Another Round Of Oil Price Gains

But analysts warn that one key benchmark is likely overbought: File Image/Pixabay

Oil prices on Wednesday experienced another round of gains, again due to traders taking seriously persistent reports that the crude market is tightening globally and will continue to do so despite inflationary headwinds that, so far, have not dented demand.

After a media poll estimated on average that U.S. crude inventories fell by about 2.1 million barrels in the week to Sept. 1., Brent settled up 56 cents to $90.60 per barrel and West Texas Intermediate settled up 85 cents to $87.54.

Bob Yawger, director of energy futures also at Mizuho, remarked, "We have pretty low crude supplies in the U.S., with several weeks of big crude oil draws pushing prices up."

Earlier, traders had reportedly been spooked by the ISM non-manufacturing Purchasing Managers' Index (PMI) coming in at 54.5, compared with expectations of 52.5: data that sparked yet more concerns about the resiliency of the economy.

But overall oil has rallied in the second half of this year due to the Organization of Petroleum Exporting Countries (OPEC) adopting supply cuts and more recently additional, voluntary reductions that Saudi Arabia and Russia this week indicated could be extended even further depending on market conditions.

Nadia Martin Wiggen, a director at Svelland Capital, said, "When we look toward the start of next year after these cuts, we're going to see OECD commercial stock levels at lows we haven't seen except in very big years."

For its part, Goldman Sachs Group Inc. theorized that one possible outcome of OPEC's self-discipline was Brent extending gains to above $100 per barrel; however, even though the benchmark this week broke the $90 threshold, Bloomberg pointed out that "crude is flashing warnings that it is overbought on a 14-day Relative Strength Index basis, raising the risk of a pullback."

In other oil related news on Wednesday, China's Sinopec said due to that country's EV boom, peak domestic gasoline demand has already passed and will decline from here on in.

But in other areas of the globe a different story is unfolding: Sinopec's declaration came on the heels of a recent report by the International Energy Agency stating that global oil demand reached an all time high of 103 million barrels per day (bpd) in June and remains on track to average 102.2 million bpd for the whole year, the highest ever annual level.