Oil Extends Gains, Market Anticipates U.S. Government Reopening Will Boost Demand

Meanwhile, Nigeria hopes oil investment will result in a $1 trillion economy: File Image/Pixabay

For a second straight session, oil on Tuesday rose due to investors yet again weighing supply tightness worries with glut fears; the former gained prominence, and the commodity enjoyed a boost of about 1.5 percent.

Brent settled up $1.10, or 1.7 percent, to $65.16 per barrel, and West Texas Intermediate settled up 91 cents, or 1.5 percent, to $61.04 per barrel.

The reason for investors leaning towards supply worries remained the same: the possibility that disruptions would result from the latest U.S. sanctions against Russia, as well as from a Ukraine drone strike causing enough damage at Lukoil's Volgograd refinery to halt operations.

Phil Flynn, senior market analyst at Price Futures Group Inc., also pointed out that "The optimism around the government reopening is increasing demand expectations," referring to the likelihood that the longest government shutdown in U.S. history could end this week.

Further, Bloomberg pointed out that, "Healthy premiums for fuel — one gauge of Europe's diesel benchmark is the strongest since early last year — alongside wider geopolitical risks, have helped to keep crude prices afloat."

For its part, Energy Aspects theorized that technical traders known as commodity trading advisors (CTAs) could potentially spur additional buying in the coming days: James Taylor, commercial manager for EA quant analytics for the consultancy, said, "The larger CTA buy triggers above US$64.50 leave the balance of risk skewed to the upside."

However, Commerzbank noted that glut fears were still dominant and capped Tuesday's gains, stating in a note that "The oil market is also facing a considerable oversupply in the coming year, which is why prices are likely to remain under pressure…the main cause of the oversupply is the significant expansion of supply by OPEC+"

Commerzbank was referring to the Organization of the Petroleum Exporting Countries adding 2 million barrels per day (bpd) of output since April and deciding to undo voluntary production cuts after a first quarter pause next year.

In other oil news on Tuesday, Nigeria announced it will open its 2025 oil licensing round on December 1 with the Upstream Petroleum Regulatory Commission playing a more significant role in the proceedings – a move said to signal the country's intent to boost output and drive the economy toward a $1-trillion target.