Oil edges lower as markets shrug off supply jitters

Oil prices reversed course on Wednesday after rising over 1% in the previous session, as investors shrugged off jitters arising from supply cuts from Saudi Arabia and Russia and a firm dollar capped the upside.

Brent crude futures were down by 9 cents to $89.95 a barrel at 0657 GMT. U.S. West Texas Intermediate crude (WTI) futures traded at $86.60 a barrel, also down 9 cents.

Against a basket of currencies, the dollar was at 104.69, not far off the six-month high of 104.90 touched overnight. A stronger dollar can weigh on oil demand by making the fuel more expensive for holders of other currencies.

Analysts at Rystad Energy and ING Economics said the output cuts from OPEC+ will leave the market with a deeper than expected deficit over the fourth quarter of 2023, which should continue to support prices.

However, ING Economics was reluctant to revise price forecasts higher, as it expected demand concerns to continue to linger amid a rise in Iranian supply.

“Iran is producing close to 3.1 million barrels per day (bpd) and plans to pump around 3.4 million bpd. Meanwhile, our oil balance shows a small surplus in the first quarter of 2024, which should limit prices moving significantly higher,” ING Economics analysts said in a note.

Reflecting supply concerns in the near term, the front-month Brent futures traded near 9-month highs at $4.13 a barrel above prices in six months.

For U.S. WTI futures, the spread between front-month and the six-month contract widened to as much as $4.5 a barrel on Wednesday, also hovering near 9-month highs.

Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day (bpd) for another three months until the end of December 2023, state news agency SPA said on Tuesday, citing an energy ministry official.

Russia extended its decision to reduce its oil exports by 300,000 bpd to the end of this year, Deputy Prime Minister Alexander Novak said in a statement on Tuesday.

The Saudi and Russian cuts are on top of the April cut agreed by several OPEC+ producers, which extends to the end of 2024.

Both countries will review their decisions monthly to consider deepening cuts or raising output depending on market conditions, SPA and Novak said.

“The decision to prolong output cuts underscores their dedication to price stability in a challenging market environment,” Sugandha Sachdeva, executive director and chief strategist at Acme Investment Advisors, said.

Sachdeva, however, added that the annual refinery maintenance period in the U.S. from September to October could limit demand for crude and potentially act as a restraining factor on rising oil prices.