Oil steadies near three-month high on tighter supplies

Oil hovered around three-month highs on Tuesday as investors focused on tightening global supplies and demand growth in the second half of the year.

Brent crude futures for October were at $85.43 a barrel at 1152 GMT, down 20 cents. Front-month Brent settled at its highest since April 13 on Monday.

U.S. West Texas Intermediate crude futures were at $81.53 a barrel, down 27 cents from the previous session’s settlement, which was its highest since April 14.

“Oil prices may face a correction risk as the markets may have been overbought in the past month,” said Tina Teng, an analyst at CMC Markets.

PVM analyst Tamas Varga noted that for months, predictions have been made that global oil demand will grow in the second half of 2023, versus the first half, in tandem with supply cuts to reduce global oil inventories.

Recession worries made investors more cautious earlier in the year, he said.

“Then July arrived and the mood has promptly changed,” he added, citing the action of central banks that has investors more confident that a “soft landing” is achievable and recession avoidable in major economies.

The latest figures from the United States – the world’s biggest fuel consumer – showed fuel demand rose the highest level since August 2019. A Reuters poll also estimated U.S. crude oil and gasoline stockpiles were expected to have declined last week.

China, which has been grappling with a sluggish post-COVID recovery, released additional policy guidelines on Monday – though without concrete measures – to boost momentum, after manufacturing activity fell for a fourth month in July.

Meanwhile, data released on Monday showed manufacturing activity in the euro zone contracted in July at the fastest pace since May 2020, tempering enthusiasm.

On the supply side, this Friday’s OPEC+ meeting is expected to see Saudi Arabia roll its voluntary cuts through September, further tightening supplies.

In a conference on Monday, BP (LON:BP) chief Bernard Looney presaged oil demand growth continuing into next year and OPEC+ being increasingly disciplined.

“(This creates) a situation where you’d describe the outlook for oil prices to be strong over the coming months and years.”