Oil prices dip amid strong dollar and demand concerns

Equinor's oilfield platforms in the North Sea, Norway. Reuters

Oil prices were slightly lower on Thursday on a strong dollar and as traders awaited signs of demand growth in the crude market.

Brent, the benchmark for two-thirds of the world’s oil, was trading 0.28 per cent lower at $90.35 a barrel at 6.05pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was trading 0.24 per cent lower at $87.33 per barrel.

On Wednesday, Brent settled 0.62 per cent higher at $90.60 a barrel. WTI closed up 0.98 per cent at $87.54 a barrel.

“The oil market is going to be tight for the foreseeable future, but right now energy traders need a fresh catalyst or some not-so negative demand news for the recent rally to extend,” said Edward Moya, senior market analyst at Oanda.

US crude stocks, an indicator of fuel demand, fell by 5.5 million barrels last week, according to the American Petroleum Institute.

Official crude inventory data from the US Energy Information Administration is expected to be released later today.

Oil prices are trading at 10-month highs after Saudi Arabia and Russia said they would extend supply cuts of a combined 1.3 million barrels per day to the end of the year.

As part of their voluntary cuts, the kingdom is extending its one million bpd output reduction until December, while Russia is rolling over its export cut of 300,000 bpd until the end of the year.

Further cutbacks

Riyadh has said that the cuts would be reviewed monthly, and adjustments made, if necessary, in response to market conditions, leaving the door open to further cutbacks, BMI Research said in a note on Thursday.

“The [fourth quarter] market balance now looks considerably tighter, and bears may be warier of shorting Brent, in case they run afoul of future action by Saudi Arabia,” the Fitch Solutions-owned research firm said.

BMI expects Opec+ production to rise by a “relatively moderate” 367,000 bpd next year as many members have limited capacity to raise their output even as nominal cuts are rolled back.

“Those that do – notably the GCC – are likely to continue constraining production next year, opting for a gradual increase in supply, to avoid upsetting the market.”

BMI left its Brent crude forecast unchanged at $80 a barrel for 2023 and $83 a barrel for 2024.

Swiss lender UBS expects a market deficit of more than 1.5 million bpd in the fourth quarter of 2023 and with oil inventories set to fall further over the coming months, it is forecasting Brent to rise to $95 a barrel by the end of the year.

MUFG Bank maintained its year-end 2023 and 2024 Brent crude target of $84 a barrel and $87 a barrel, respectively, with a surge back north of $100 a barrel.

A stronger dollar is also weighing on oil futures.

The US Dollar Index – a measure of its value against a weighted basket of major currencies – jumped to a six-month high of 105.03 on Wednesday on positive US services sector data. It is currently up 0.04 per cent at 104.91.

A stronger greenback makes dollar-denominated oil more expensive for holders of other currencies.

The Institute for Supply Management (ISM)'s non-manufacturing purchasing managers’ index (PMI) rose to 54.5 last month, from 52.7 in July.

“All the main components of the survey improved last month with the employment index up four points. Prices paid jumped to the highest level since April,” Emirates NBD economists said in a research note.

Meanwhile, China's crude oil imports in the first eight months of the year rose by nearly 15 per cent from the same period last year, Reuters reported on Thursday, citing customs data.

The country, the world's top importer of oil, has been taking steps to boost the country’s sluggish economy.