Oil rebounded on Thursday, with Brent crude topping $93 a barrel for the first time this year, as expectations of a tighter supply outlook for the rest of 2023 overshadowed concerns over weaker economic growth and rising U.S. inventories.
Saudi Arabia and Russia’s extension of oil output cuts will result in a market deficit through the fourth quarter, the International Energy Agency said on Wednesday before a bearish U.S. inventories report prompted a brief pullback in prices.
“That this genuinely bearish stock report only led to a brief temptation to sell speaks volumes and underlines the market mentality,” said Tamas Varga of oil broker PVM.
The tightening oil balance will remain the dominant price driver for the rest of 2023, he added.
Brent crude was up $1.38, or 1.5%, at $93.26 by 1230 GMT after touching $93.32 for its highest since November 2022. U.S. West Texas Intermediate crude (WTI) gained $1.48, or 1.6%, to $90, having also hit a 10-month high.
Both benchmarks had slipped on Wednesday after a U.S. supply report showing rising crude and refined product stocks.
Priyanka Sachdeva, senior market analyst at Phillip Nova, said supply fears are underpinning oil prices as producers “adamantly stick to restricted production”.
A day before the IEA report, the Organization of the Petroleum Exporting Countries (OPEC) issued updated forecasts of solid demand and also pointed to a 2023 supply deficit if production cuts are maintained.
“The oil market looks decidedly tight over the next two to three quarters as supply constraints persist amid robust demand,” ANZ Research analysts said.
Seperately on Thursday, OPEC said data-based forecasts do not support the IEA’s projection that demand for fossil fuels would peak in 2030. “Such narratives only set the global energy system up to fail spectacularly,” OPEC Secretary General Haitham Al Ghais said in a statement.
The European Central Bank, meanwhile, raised its key interest rate to a record peak but signalled that this is likely to be its final move in its lengthy fight to tame inflation.
Reuters reported on Tuesday that the ECB was set to raise its inflation forecast for next year to more than 3%, bolstering the argument for higher interest rates.