Tuesday saw Brent crude oil prices surge beyond the $90 per barrel mark, marking the first occurrence since November. Simultaneously, West Texas Intermediate, the primary U.S. futures contract, experienced a 1.85% increase, reaching $87.13. This rally was propelled by Saudi Arabia and Russia’s joint announcement of extending voluntary oil production cuts until year-end, propelling Brent crude to its highest point in ten months.
Subsequently, crude oil futures on Thursday displayed marginal decreases but largely retained their strong gains for the week, driven by supply reductions from key OPEC+ member nations.
Furthermore, a reduction in U.S. crude inventories played a role in reinforcing market sentiment. The week’s news had already caused prices to surge to annual highs, with Goldman Sachs predicting an additional $2 per barrel increase due to the developments.
August witnessed an 8 pence per litre increase in diesel prices, equivalent to £4 per tank, although retailers mitigated the impact by reverting to “normal levels” of profit margins, according to RAC Fuel Watch. This surge marked the fifth and sixth most substantial monthly increases in the past 23 years, prompting many to consider securing fuel rates well into 2024 due to growing concerns about prices and supply stability.
While consumers had previously breathed a sigh of relief as fuel prices retreated from record highs the previous summer, the recent price hikes have come as an unwelcome surprise. The cost per barrel of oil increased by $12 between the beginning of July and the end of August, attributed to supply reductions by OPEC producer nations.
Diesel prices experienced a significant surge, with petrol prices also rising in the past month. The breach of the $90 per barrel mark for Brent crude last week, the first time since November, has raised concerns of further price escalations.
Supply-side cuts from Saudi Arabia and Russia will continue to exert a dominant influence on oil markets this week, leading to declining inventories and bolstering the ongoing rally. However, demand from China is expected to remain robust despite broader economic challenges, as recent customs data indicated a robust recovery in August, with additional data to be disclosed this week.
Among the key economic indicators for the week, Wednesday’s pivotal U.S. consumer price report for August is anticipated to provide insights into future U.S. interest-rate policies, with gasoline prices likely contributing significantly to changes in the Consumer Price Index (CPI). Additionally, the European Central Bank (ECB) has a scheduled meeting this week, and while it is expected to maintain steady interest rates, it will be attentive to energy-related inflationary pressures.