Crude oil futures concluded on a high note this past Friday, September 1st, marking their highest levels for the year, as the trend of tightening oil supply continued to exert bullish pressure on the market. Additionally, a positive report on China’s manufacturing activity contributed to the oil market’s robust performance, ahead of a three-day weekend due to Labor Day, a national holiday in the United States falling on Monday, September 4.
West Texas Intermediate (WTI) crude futures registered a significant gain of $1.92, representing a 2.3% increase, settling at $85.55 per barrel. This closing price marked the highest level since November 16, 2022. Throughout the week, WTI crude futures experienced a substantial surge, climbing by 7.2%, while also recording a 2.2% gain over the course of August.
Meanwhile, Brent crude futures mirrored the upward trend, ascending by $1.72 or 2%, concluding at $88.55 per barrel. This closing level stood as the highest since November 17, 2022, with a weekly increase of 5.5% and a monthly rise of 1.5%.
The month of August witnessed a third consecutive monthly rise in both WTI and Brent crude oil futures, as the market continued to be buoyed by positive economic indicators. Among these, the China Purchasing Managers’ Index (PMI) played a pivotal role, surpassing expectations with a reading of 51 for August. Furthermore, China’s move to lower down payments for home purchases contributed to the bullish sentiment in the oil market.
The surge in oil prices was also attributed to market expectations regarding the actions of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC Plus. These entities were anticipated to extend their oil production cuts until the end of the year.
Traders foresaw Saudi Arabia’s potential announcement of an extension of voluntary oil production cuts, amounting to 1 million barrels per day, through the end of October. Concurrently, Russia revealed its accord with OPEC+ to curtail production, with specific details slated for release in the upcoming week.
Additionally, oil prices received support from expectations regarding the Federal Reserve (Fed) potentially refraining from further interest rate hikes. This sentiment was driven by the release of the non-agricultural employment report on Friday, which showcased a mixed economic landscape.
The report disclosed a higher-than-expected nonfarm payrolls figure, with an increase of 187,000 jobs in August, surpassing the initial estimate of 170,000 jobs. However, it also revealed an uptick in the unemployment rate to 3.8%, marking its highest level since February 2022 and exceeding the projected rate of 3.5%.
Average hourly wages for workers rose by 4.3% on a year-on-year basis in August, slightly below analysts’ expectations of 4.4%. On a monthly basis, the increase was 0.2%, falling short of the forecasted 0.3%.
This complex economic landscape suggests a potential slowdown in inflation, which could influence the Fed’s decision-making regarding interest rates. Despite the stronger-than-expected employment numbers, the prevailing view is that inflation concerns may become a pivotal factor in the Fed’s decision to halt the current cycle of rate hikes.
In conclusion, the oil market’s recent surge, driven by a confluence of factors, underscores the market’s sensitivity to supply dynamics and macroeconomic conditions. As the oil industry navigates these influences, investors and analysts will remain vigilant in monitoring developments, as they continue to shape the trajectory of oil prices in the coming months.
The Spot Market is Closed
Saturday, September 2, 2023