Oil Extends Gains On Supply Worries As U.S. Output Expected To Fall In October

Meanwhile, traders wait for another possible interest rate hike this week: File Image/Pixabay

Tight supply concerns continued to sway crude traders on Monday instead of the usual demand worries, as they once again exhibited confidence in the extended production cutbacks undertaken by Saudi Arabia and Russia.

Brent settled up 50 cents at $94.43 per barrel (trading into overbought territory for the seventh straight session) and West Texas Intermediate settled up 71 cents to $91.48 (trading into overbought territory for the fifth straight session).

Investors were also inspired by the U.S. Energy Information Administration, which stated in its latest monthly report that production from top shale-producing regions is expected to fall for a third month in a row in October to its lowest level since May 2023.

ANZ analysts on Monday warned of potential crude price spikes in 2024 as a result of the Saudis and Russia contributing to a likely 2 million barrel per day (bpd) deficit in the fourth quarter; and for its part, Citi became the latest analytical body to predict that prices could soon exceed $100 per barrel as a result.

However, Citi also noted that such elevated price levels caused by the output reduction as well as geopolitical tensions are not sustainable, and it predicted a retreat by year-end to around $84 in the fourth quarter and down further to the low $70 range next year.

Meanwhile, a sure-fire influence on oil trading later this week came in the form of the Bank of England, which is widely expected to raise interest rates once again but possibly for the last time in the foreseeable future, as more policymakers are beginning to voice their concerns over a cooling economy.

The bank's actions could evoke the sudden return of bearish sentiment within the investment community, a possibility keenly appreciated by Dennis Kissler, senior vice president for trading at BOK Financial Securities, who on Monday warned that "The latest buying spree has taken prices too high too fast, so any type of negative news can trigger a dramatic selloff."

However, Kissler added that, "Overall fundamentals remain tight on the supply side; until the true fundamentals change, the market will seem resilient to long lasting selloffs."