Oil prices eased today as a stronger US dollar and economic concerns in China weighed on the outlook for fuel demand, but extended supply cuts by Saudi Arabia and Russia helped keep Brent above $90 a barrel.
Brent crude fell 15 cents, or 0.2%, to $90.50 a barrel in early trade, while US West Texas Intermediate crude was at $87.08 a barrel, down 43 cents, or 0.5%.
“Concerns about Chinese economic growth weighed on sentiment across commodities,” ANZ analysts said in a note.
“The move was exacerbated by a stronger US dollar which kept investor appetite low,” they added. The dollar has risen for eight weeks in a row.
Oil prices have gained in the past two consecutive weeks with Brent settling at its highest since November on Friday, after Saudi Arabia and Russia announced last week they will extend voluntary supply cuts of a combined 1.3 million barrels per day until the end of the year.
“Oil prices have largely converged with our fair value estimate, but with Saudi Arabia more aggressive than expected with its unilateral cut and continuing strength in demand, we caution against fading the recent run-up,” Barclays analyst Amarpreet Singh said in a note.
The International Energy Agency and the Organization of the Petroleum Exporting Countries (OPEC) are due to release their monthly reports this week, and any sign of strong demand will likely push oil prices higher.
Mukesh Sahdev, head of downstream and oil trading at Rystad Energy, said the impact of the Saudi-led cuts would be clearer by year-end, when refineries finish maintenance and increase production.
“Refinery maintenance will lower crude demand by 2-2.5 million bpd in September and October, but it will rebound in November and December, partially offsetting the price effects of the cuts,” Sahdev added, estimating that refinery outages will peak at 10 million barrels per day (bpd) in October.
In the US, producers added an oil rig last week for the first time since June, Baker Hughes said in its weekly report, but the total count was still down 127, or 17%, below this time last year.
WTI is likely in the process of marking out a new higher range at above $83 and below resistance at $93.50 in the weeks ahead, with concerns around demand in China and Europe capping further upside, IG analyst Tony Sycamore said in a note.