The US dollar was trading close to its overnight high of 104.90 as measured against a basket of currencies, at 104.69. Oil demand may be impacted by a rising dollar since holders of foreign currencies will pay more for the fuel.
Following a session in which oil prices rose over 1% to a 10-month high as Saudi Arabia and Russia extended their voluntary production cutbacks through the end of the year, oil prices reversed gains on Wednesday, September 6. But so far in today's session, the US dollar has strengthened and investors have shrugged off concerns brought on by a tightening supply.
To $89.56 per barrel, Brent crude futures saw a 50 cent decline. Reuters reported that the price of US West Texas Intermediate crude (WTI) futures decreased by 31 cents to $86.58 a barrel. Brent crude futures closed above $90 a barrel in the previous session for the first time since November 16, 2022, when they increased by $1.04, or 1.2%, to conclude at $90.04 a barrel. US WTI futures increased by $1.14, or 1.3%, to close at $86.69 per barrel, a 10-month high.
At home, crude oil futures with a September 19 expiration were last trading 0.25 percent higher at $7236 a barrel on the Multi Commodity Exchange (MCX). They had previously closed at $7,218 per barrel and had fluctuated between $7,145 and $7,241 during the session.
The dollar was trading near its overnight high of 104.90 when measured against a basket of currencies, at 104.69. Oil demand may be impacted by a rising dollar since holders of foreign currencies will pay more for the fuel.
The front-month Brent futures had traded at $4.13 a barrel, above prices in six months, close to nine-month highs, reflecting supply concerns in the near term. According to Reuters, the difference for US WTI futures between the front-month and the six-month contract increased to as much as $4.88 per barrel on Wednesday and was also close to nine-month highs. Since the end of June, the prices of Brent and WTI futures have risen by over 20%.
What determines the price of crude oil?
Tuesday saw the extension of Saudi Arabia's and Russia's voluntary oil production cutbacks through the end of the year, with Saudi Arabia's cuts totaling 1 million barrels per day (bpd) and Russia's cuts totaling 300,000 bpd. These come in addition to the cut that OPEC+ (OPEC and its partners) agreed to in April, which will last through the end of 2024. The three-month extension was unexpected, even though investors had anticipated Saudi Arabia and Russia to extend their voluntary cutbacks through October.
Both nations will reevaluate their choices every month and, depending on the state of the market, may decide to increase output or make even deeper cuts. Analysts cautioned that price increases might encounter challenges because of a probable decline in demand as US refineries enter their September–October maintenance period and a potential increase in supply from Iran, Venezuela, and Libya.
-On the macroeconomic front, indicators from China to the Eurozone and the US for August have remained weak, but the optimism surrounding Chinese stimulus efforts will keep prices strong alongside the supply cutbacks from OPEC+.
What direction will oil prices take?
By the end of 2023, according to Mohammed Imran, a research analyst at Sharekhan by BNP Paribas, the global crude oil market balance will be in deficit by about 1.5 million barrels per day (bpd), as Saudi Arabia and Russia together extended their voluntary production cuts by about 1.3 mbpd.
Oil prices have risen 20% since June of this year as a result of the output reductions by OPEC and its allies in the market. Analysts believe that Iran's anticipated increase in supply to around 3.4 mbpd by the end of September may maintain the price restriction.
In light of the weaker ISM services data and the uncertainty surrounding rate rises, Mohammed Imran predicted that crude oil prices will experience some profit taking for the day.
Technical Perspective
Regarding MCX Crude Oil, domestic brokerage firm Religare Broking is impartial. "MACD bullish divergence suggests a slight uptick in positivity." However, a sudden decline below 7,120 may lead to weakness,'' the brokerage firm warned in a research note. Religare expects technical levels to range from 6,800 to 7,520. At 7,120, the turning point is visible.
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