Oil futures took a slight dip on Wednesday after hitting highs last seen in 2023. The drop follows the recent announcement from Saudi Arabia and Russia regarding the extension of supply cuts.
Price Action
- West Texas Intermediate crude for October delivery fell 0.3% to $86.41 a barrel on the New York Mercantile Exchange.
- November Brent crude declined 0.5% to $89.63 a barrel on ICE Futures Europe.
Market Drivers
The jump in oil prices on Tuesday was triggered by Saudi Arabia’s decision to extend its voluntary production cut of 1 million barrels per day until the end of the year. Russia also announced an extension of its supply cut. This move pushed WTI and Brent to their highest levels since November.
According to Joe DeLaura, senior energy strategist at Rabobank, the supply cuts will maintain a fundamentally strong market. In his note on Wednesday, he explained that rig counts in the U.S. are decreasing while production is increasing, mainly due to the completion of drilled wells.
DeLaura also highlighted that crude futures are in a strong backwardation, indicating strong physical demand. Refineries are running at high capacity in an effort to rebuild depleted downstream products inventories, creating a bullish market from a real-world perspective.
