Brent crude futures advanced to $46.50 a barrel, a five-month high owing to 30% supply cuts from Abu Dabhi. Global oil demand struggles to return to pre-COVID levels.
Increase in Brent Benchmark
The Brent crude futures for November has witnessed a jump of 69 cents, or 1.5% on Monday. U.S. West Texas Intermediate crude (CLc1) was at $43.48 a barrel, up 51 cents, or 1.2%. The Abu Dhabi National Oil Company confirms that it would decrease October supplies by 30% as directed by the United Arab Emirates government. It will also cut its supply for September by 5%. The decision has come in the backdrop of meeting its commitment to the recent OPEC+ agreement.
Demand From China- Main Driver in Recovery
The demand for oil from China has been the main driver of recovery in oil markets. As opposed to the predictions of several analysts, demand from China remained strong in July and August. Besides, recent data revealed that China’s services sector grew at its fastest pace in August in over two and a half years. That apart, a weaker U.S. dollar lowers the import bills of several critical Asian crude importers.
Fragility of Global Market Tempered Gains
OCBC’s economist Howie Lee said that the supply cuts would allow the market to absorb the inventory glut better as fuel demand struggles to recover amid the coronavirus pandemic. OANDA’s Asia-Pacific analyst Jeffrey Halley noted that the fragility of the global recovery had tempered price gains.
Analysts predict that both Brent and WTI benchmarks could see headwinds in September owing to a slower recovery due to the uncertainty over the coronavirus pandemic.
In all, the global demand for crude oil will materialize gradually depending on the recovery from the pandemic.