Business News/ Markets / Commodities/  Oil prices rise over OPEC+ supply cut speculation, falling US inventories

Oil prices rose on May 24 after official data pointed to a drop in US inventories and tightening of fuel supplies following a warning from the Saudi Arabia's energy minister that raised the prospect of further output cuts by the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+. Prince Abdulaziz bin Salman warned that short sellers - those betting that prices will fall - should ‘watch out’ for pain.

Brent crude futures rose $1.09, or 1.42 per cent, to $77.93 a barrel, while US West Texas Intermediate crude (WTI) gained $1.14, or 1.56 per cent, to $74.05 a barrel. Crude inventories fell about 6.8 million barrels last week, according to the American Petroleum Institute (API) figures. Gasoline inventories dropped about 6.4 million, which boosted oil prices. 

Also Read: Crude oil prices likely to remain elevated. Here's why

"Oil prices are trading higher...buoyed by the latest short-seller warning from Saudi Arabia," said OANDA senior market analyst Craig Erlam told news agency Reuters. "(But) if past experience is anything to go by, traders may be tempted to call his bluff,'' added Erlam.

Saudi Arabia, the world's largest oil exporter, and other OPEC+ producers announced surprise voluntary cuts in April that lifted prices after a slump driven by concerns that a banking crisis could impact demand.

Analysts at Standard Chartered bank said in a note that short speculative positions are now as bearish as they were at the start of the pandemic in 2020. “We think the latest build-up in short positions significantly increases the probability of further production cuts when OPEC+ meets," the analysts added.

Meanwhile another round of debt ceiling talks ended on May 23 with no signs of progress as the deadline to raise the government's borrowing limit or risk default ticked closer - which also weighed on broader markets. Earlier this week, President Joe Biden and House Speaker Kevin McCarthy said that they had “productive" talks. President Biden said all agreed that “default is not really on the table." 

Analysts at Swiss bank UBS in a note on May 17, trimmed their Brent price forecasts by $10 per barrel to $95 per barrel by year-end, given the higher-than-expected crude oil volumes and recession fears. They anticipate the market will be undersupplied by nearly 1.5 million barrels per day in June.

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Updated: 24 May 2023, 06:00 PM IST
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