Oil prices were little changed on Tuesday, trading near a three-month high reached on Monday, on signs of tightening global supply, as producers implement output cuts, and strong demand in the United States, the world’s biggest fuel consumer.
Brent crude futures for October were at $85.25 a barrel at 0402 GMT, down 18 cents or 0.2% lower from its close. Front-month Brent settled at its highest since April 13 on Monday.
U.S. West Texas Intermediate crude was at $81.64 a barrel, down 0.2% or 16 cents from the previous session’s settlement, which was its highest since April 14.
“Oil prices may face a correction risk as the markets may have been overbought in the past month. However, a softened U.S. dollar and China’s policy optimism may continue to provide bullish factors to crude futures,” said Tina Teng, an analyst at CMC Markets, as a weaker greenback makes dollar-priced oil cheaper for holders of other currencies.
“Signs of a soft-landing U.S. economy has also improved oil’s demand outlooks,” Teng added.
Chinese authorities released additional policy guidelines on Monday – though without concrete measures – to boost its economy and domestic consumption, after manufacturing activity fell for a fourth month in July.
A private sector survey also showed on Tuesday that China’s factory activity swung to contraction in July, with supply, demand and export orders all deteriorating amid sluggish market conditions.
National Australia Bank (NAB) analysts expect oil prices to hit 2023 price highs ahead of this Friday’s ministerial meeting of the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+.
“The OPEC meeting this Friday is a potential catalyst for the outlook where we expect Saudi Arabia’s voluntary supply cuts to be extended another month,” NAB said in a Tuesday note.
In June, OPEC+ agreed on a broad deal to limit oil supply into 2024, and Saudi Arabia pledged an additional voluntary cut of 1 million barrels per day for July. On July 3, Saudi Arabia said the cut would include August, adding that it could be extended further.
The Saudi Arabian cuts fell slightly short of the target, with output down by 860,000 bpd in July, while total production from OPEC was 840,000 bpd lower, a Reuters survey showed on Monday.
The data showing the supply cuts coincided with U.S. figures released on Monday showing fuel demand rose to 20.78 million bpd in May, the highest since August 2019. The data from the Energy Information Administration also showed gasoline demand, expressed as product supplied to the market, surged to 9.11 million bpd, the highest since June 2022.
U.S. crude oil and gasoline stockpiles were expected to have declined last week, according to a Reuters poll which estimated on average that crude inventories fell by about 900,000 barrels in the week to July 28.
(Editing by Christian Schmollinger)