Oil Prices Dip 1% on Macroeconomic Concerns and Profit Taking

Oil prices experienced a 1% decline on Friday as a result of macroeconomic concerns and profit taking. However, they still managed to rise by approximately 30% in the quarter due to OPEC+ production cuts that squeezed global crude supply. The front-month Brent November futures settled down 7 cents to $95.31 per barrel at the contract’s expiry, marking a 2.2% increase for the week and a 27% increase for the third quarter. Meanwhile, the more liquid Brent December contract settled down 90 cents to $92.20 per barrel. U.S. West Texas Intermediate crude (WTI) settled down 92 cents to $90.97, showing a 1% increase for the week and a 29% increase for the quarter.

The recent surge in oil prices has led to a rise in oil and gas activity in three U.S. energy-producing states, according to a survey conducted by the Federal Reserve Bank of Dallas. Additionally, U.S. crude production reached its highest level since November 2019 in July, as reported by the Energy Information Administration.

Despite the positive momentum, some investors decided to take profits on the rally due to ongoing macroeconomic concerns. John Kilduff, a partner at Again Capital LLC in New York, noted that WTI was losing its luster, attributing it to profit taking and economic worries.

Investors are also keeping an eye on potential risks, such as a potential partial U.S. government shutdown and concerns about the Chinese economy. The shares of indebted property developer Evergrande Group were suspended until further notice following reports that its chairman had been placed under police watch.

The U.S. oil and gas rig count, which serves as an early indicator of future output, fell by seven to 623 in the week ending September 29. This is the lowest count since February 2022, according to energy services firm Baker Hughes. However, the reduction in rig count has slowed compared to the previous quarter, reflecting the rebound in oil prices and tightening supplies.

Looking ahead, economists surveyed by Reuters forecast an average Brent price of $89.85 per barrel in the fourth quarter and $86.45 per barrel in 2024. The upcoming OPEC+ ministerial panel meeting on October 4 is expected to play a significant role in determining oil prices for the remainder of the year. Analysts from National Australia Bank suggest that there is an increasing probability of reduced voluntary supply cuts by Aramco, Saudi Arabia’s state oil producer.

Although there is a possibility of oil prices reaching $100 per barrel, Suvro Sarkar, energy sector team lead at DBS Bank, believes that this surge may be short-lived due to the artificial nature of supply shortages and the fragile macro environment.

Overall, while oil prices experienced a slight dip on Friday, they have shown significant growth in the third quarter. The market continues to be influenced by various factors, including production cuts, economic concerns, and geopolitical developments.