Oil futures: Crude rebounds from lows, supplies set to remain tight
Quantum Commodity Intelligence – Crude futures Tuesday were climbing higher with markets again torn between solid oil fundamentals pitted against fears of a broader economic slowdown, including Europe's sluggish performance and the prospect of another US interest rate hike.
Front-month Nov23 ICE Brent futures were trading at $93.98/b (1825 GMT), compared to Monday's settle of $93.29/b and close to the day's highs after prices recorded a low of $91.80/b.
At the same time Nov23 NYMEX WTI was trading $90.43/b versus Monday's settle of $89.68/b.
Prices were lower for most of the session after European Central Bank (ECB) President Christine Lagarde sent jitters across the market during the early part of the week after signalling that while borrowing costs may have peaked, rates will remain high for as long as it takes to curb inflation.
Lagarde added that recent indicators point to further weakness in the economic activity for the current quarter, noting a moderation in job creation in the services sector and an overall slowdown of momentum, but noted that a recession was not a part of the baseline scenario.
In the US, rates are expected to remain 'higher for longer' after Federal Reserve officials upped their interest rate forecast last week, with expectations for interest rates to only decline half a percentage point by the end of 2024, rather than a previously forecast 1%. The Fed could also increase rates another 25 bps in November.
Investors were also tracking political events in the US after ratings agency Moody's warned that a US government shutdown would have negative implications for US credit ratings as it highlights the country's institutional and governance weaknesses relative to other top-rated governments.
Unless Congress can approve a spending bill by the end of this week, non-essential government workers will not be paid after the end of September.
"If the government shutdown extends beyond 2-3 weeks, it could weigh on consumer spending which is already under pressure from higher interest rates and inflation," said Emirates NBD in a client report.
Balance
However, offsetting the earlier price negativity, a tight supply/demand balance for the fourth quarter continues to underpin broader sentiment, including a potential deficit of over 3 million bpd in Q4.
"Investors have increased their bullish bets in oil to an 18-month high as the market looks increasingly tight after Saudi Arabia deepened its output cuts until the end of this year. Further adding to supply woes, the EIA is forecasting a decline in US shale production for three consecutive months after hitting a record high in July," said ANZ commodity strategist Daniel Hynes.
Russia's ban on some refined products exports has also helped sentiment, while a spike in European natural gas prices also exposed the continent's sensitivity to energy supplies after maintenance was extended at Europe's largest offshore gas field, Troll.
"Brent is still around $93/barrel after Russia temporarily banned gasoline and diesel exports further adding to supply tightness concerns. Demand expectations, meanwhile, could get a lift this week with China travel expected to pick up," said Saxo Bank in a client note, referencing the upcoming Golden Week holiday in China.
However, concerns over China's economic stability deepened as the property-sector crisis continued to weigh after the Evergrande Group failed to repay an onshore bond.
