Investing.com — Brent crude oil prices could be boosted in the near term as demand may outpace supply in the fourth quarter, Citi analysts said.
A reported decision by the Organization of the Petroleum Exporting Countries and its allies to delay the start of a taper of voluntary production cuts, along with continued supply losses in Libya, is expected to contribute to an oil market deficit of around 0.4 million barrels per day in the last three months of 2024, the Citi analysts said.
They added that such a trend could provide some temporary support “in the $70 to $75 per barrel range.”
Meanwhile, the benchmark could be further boosted by a potential recovery from recently tepid demand from top oil importer China, the analysts said.
But they indicated they still anticipate “renewed price weakness” in 2025, with Brent heading towards $60 a barrel on a looming one million barrel-per-day surplus.
Crude oil prices were higher on Thursday after a super-large interest rate cut by the US Federal Reserve drew a mixed reaction from traders, while concerns about global demand also continued.
At 3:30 AM ET, the Brent contract rose 0.9% to $74.34 per barrel, while futures (WTI) traded 1.0% higher at $70.58 per barrel. Benchmarks had recovered after a decline in Asian trading, with Brent in particular hovering around year-to-date lows.
The Fed cut rates by 50 basis points on Wednesday and indicated it would announce further cuts this year as the central bank kicks off an easing cycle to support the economy after a protracted battle against rising inflation.
Lower interest rates generally bode well for economic activity, but the Fed’s aggressive cuts also raised some concerns about a possible slowdown in broader growth.
While Fed Chairman Jerome Powell took action to address some of these concerns, he also said that the Fed had no intention of returning to an era of ultra-low interest rates, and that the center’s neutral rate bank would probably be much higher than in the last century. the past.
His comments indicated that while rates will fall in the short term, the Fed will likely keep rates higher in the medium to long term.
Meanwhile, US government data released on Wednesday showed a bigger-than-expected drop in inventories of 1.63 million barrels, which Citi analysts said was due to lower net imports and domestic production ‘outpacing’ the decline in amount of crude oil consumed by refineries.
“US crude production was hit by Hurricane Francine, peaking at 732,000 [barrels per day] of oil production off the coast of the Gulf of Mexico has come to a standstill […]with the end of impact reaching Tuesday[day] September 17, which should still show up in next week’s data,” the Citi analysts said in a note to clients.
Although the decline was much larger than expected (at a decrease of 0.2 mb), it was also accompanied by an increase in distillates and gasoline inventories. The increase in product inventories added to concerns that U.S. fuel demand was waning as the summer travel season drew to a close.