Oil hits $80 amid supply cuts

Oil prices rose to around $80 a barrel in London as traders assessed signs of tightening in the global market amid a fragile economic backdrop.

Brent futures saw a 0.7% increase in thin trading volumes on Wednesday. The previous session witnessed a gain as data revealed a six-month low in Russia’s crude shipments during the four weeks leading up to 16 July. The reduction in exports indicates that Moscow is fulfilling its commitment to the OPEC+ coalition to rein in supplies. Additionally, China, the largest oil importer, pledged to support its private sector.

Oil prices have experienced fluctuations in recent months as investors weighed China’s hesitant recovery against supply cuts by OPEC+ heavyweight producers Saudi Arabia and Russia. Furthermore, indications that the Federal Reserve may be nearing the end of an interest-rate hike cycle have added to market uncertainties. Although prices have seen a significant upward trend since late June, suggesting a potential tightening of the market, they remain lower for the year.

Carsten Fritsch, a commodity analyst at Commerzbank AG in Frankfurt, commented, “It looks like the price weakness is behind us, and traders seem to recognise that the market will tighten significantly from this month due to supply cuts and improving demand. But the prospect for recessions in the US and the euro zone, combined with slower demand in China, will provide headwinds.”

Russia has announced its intention to reduce third-quarter crude export plans by 2.1 million tons, aligning with its previous commitment to cut overseas shipments by 500,000 barrels per day in August.

There are also indications of tightening in the United States, the world’s largest fuel consumer. According to a person familiar with the data, the American Petroleum Institute reported a nationwide decline of 797,000 barrels in crude inventories last week. It’s worth noting that the API is funded by the oil industry. Furthermore, stockpiles at the storage hub in Cushing, Oklahoma, saw a drop of 3 million barrels last week. If confirmed by official Energy Information Administration data, this would be the largest decline since October 2021.