Institutional traders in the oil and fuel markets have shifted from buying to selling as higher oil prices led to profit-taking. After purchasing a total of 155 million barrels in the previous three weeks, these traders sold the equivalent of 25 million barrels of oil and fuel futures in the week ending September 26. The price of Brent and West Texas Intermediate (WTI) crude remained above $90 per barrel, but WTI slipped below $90 to close at around $88 per barrel. Meanwhile, concerns are growing over the low levels of inventories at Cushing, Oklahoma, which could make the remaining oil unusable due to physical limitations.
The global economic outlook is worsening, leading traders to focus more on demand for oil. The US dollar’s surge following a deal in Congress to extend federal government funding for 45 days has dampened demand for oil, as it makes the commodity more expensive for buyers in local currencies. However, the appetite for US crude and diesel remains strong due to supply constraints. Despite the recent signals from the US shale patch indicating that shale drillers have no plans to increase production, there are concerns about a potential retreat in oil prices in the coming months, with uncertainty surrounding the impact of a recession on oil demand.
In the short term, the upside potential for oil prices remains significant, especially as OPEC+ is expected to maintain its output cuts at its next meeting. The speculation of Saudi Arabia unwinding its 1-million-barrels-per-day (bpd) production cuts did not materialize, as the country confirmed its commitment to maintaining the cuts. Given the impact of speculation on prices, Saudi Arabia’s decision to adhere to its production policy was deemed wise, especially amid concerns about demand destruction caused by macroeconomic factors and the economic slowdown in Europe.
