Oil down a touch as bulls defend $90 on optimism over U.S. stockpile draws

© Reuters.

Investing.com - Crude prices edged lower in Monday’s trading as bulls defended the high $90 per barrel mark for global oil benchmark Brent, on the notion that U.S. stockpiles fell for a fifth straight week.

London-based Brent crude settled at $90.64, down just a penny from Friday. It has risen more than 7% over the past two weeks as the rally in oil resumed earnestly from a fortnight break to a run-up that originally began in June. Year-to-date, Brent is up almost 6%.

New York-traded West Texas Intermediate, or WTI, crude settled at $87.29 per barrel, down 22 cents, or 0.3%, on the day. WTI rose almost 10% over the past two weeks, reigniting an oil rally that began in June and which has put the U.S. crude benchmark up 9% on the year.

Both Brent and WTI are trading near 10-month highs, boosted by talk of Saudi-Russian production cuts.

“Oil prices have also been tearing higher again in recent weeks, aided by the Saudi/Russian decision to extend output restrictions until the end of the year,” observed Craig Erlam, analyst at online trading platform OANDA. “Brent is now trading around $90 where it has stalled over the last week.”

Monday’s lows in oil prices were limited by the notion that U.S. Energy Information Administration, or EIA, will report on Wednesday that domestic crude and gasoline stockpiles had fallen last week for a fifth week in a row, as benign weather ahead of the approaching fall season on Sept. 23 encouraged Americans to continue road travels.

Aside from the EIA report on Wednesday, those in the oil market also have to contend this week with supply-demand forecasts from the Vienna-based Organization of the Petroleum Exporting Countries, or OPEC, and the Paris-based International Energy Agency, or IEA.

The OPEC report will particularly be scrutinized for forecasts on more supply tightness that could push crude prices even higher, though the IEA could balance some of that by pointing out the potential for higher inflation that could ultimately weigh on demand.

U.S. inflation data is another major markets event scheduled for Wednesday. The August reading for the Consumer Price Index, due on Wednesday, is expected to show a year-on-year increase of 3.6%. In July, the so-called CPI had risen to 3.2% from a previous reading of 3% for June. Until then, inflation had been on a decline for most of the past year, after hitting a four-decade high of 9.1% in June 2022.

High energy prices are one of the biggest drivers of inflation. If the CPI continues to rise, it could embolden the Federal Reserve to do more rate hikes than initially anticipated by economists. 

Brent's hold at above $90 comes with less than two weeks left for summer, the season Americans like driving the most. With the fall season of lower oil usage set to begin imminently, crude prices would typically retreat a little, sometimes meaningfully, in the world’s largest consuming country.

But that may not happen this time, not with the Saudi obsession of ultimately getting oil to $100 a barrel or beyond. The Arabs, who control much of the world’s oil exports, have been fixated on triple digit pricing since losing that advantage in August 2022, when Brent crude hovered above $105. 

Key to this is the 1.0-million-barrels-per day in additional cuts, on top of other existing production rationing, that the Saudis have been carrying out since July. By extending this till the year-end — and widening it with the help of Moscow which will cut 300,000 barrels per day of Russian production — the kingdom is hoping to create a different sort of market phenomenon for pricing.

(Peter Nurse and Ambar Warrick contributed to this item)