Oil nears three-month high on strong signs of tightening supply

Oil prices remained steady on Tuesday, hovering near a three-month high achieved on Monday. This is due to signs of a decrease in global oil supply as producers cut output and a strong demand for fuel in the United States, the world’s largest fuel consumer.

Brent crude futures for October were at $85.30 a barrel, down 13 cents, or 0.15 percent, from its previous close. The front-month Brent settled at its highest level since April 13 on Monday.

U.S. West Texas Intermediate crude stood at $81.69 a barrel, down 0.1 percent or 11 cents from the previous session’s settlement, which was its highest since April 14.

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“Oil prices are on track to hit 2023 price highs, in our view. The Organization of Petroleum Exporting Countries (OPEC) meeting this Friday is a potential catalyst for the outlook, where we expect Saudi Arabia’s voluntary supply cuts to be extended another month,” said National Australia Bank analysts in a Tuesday note.

According to analysts at the National Australia Bank, oil prices are expected to reach their highest level in 2023. They believe that Saudi Arabia will extend its voluntary oil output cut of 1 million barrels per day (bpd) for another month during a virtual meeting with other major producers on Friday.

In June, OPEC and its allies, including Russia, agreed on a deal to limit oil supply until 2024, with Saudi Arabia promising an additional voluntary cut for July. The cuts slightly missed the target, with Saudi Arabia reducing output by 860,000 bpd in July, and total OPEC production being 840,000 bpd lower.

Fuel demand in the U.S. rose to 20.78 million bpd in May, the highest since August 2019, as per data from the Energy Information Administration. Gasoline demand also surged to 9.11 million bpd, the highest since June 2022.

Stockpiles of U.S. crude oil and gasoline are expected to have decreased last week, according to a Reuters poll, with crude inventories estimated to have fallen by about 900,000 barrels in the week ending July 28.