The oil market deficit temporarily supported Brent prices in Q4

Investing.com — Brent crude prices could be supported in the near term by demand that could outstrip supply in the fourth quarter, according to analysts at Citi.

A reported decision by the Organization of the Petroleum Exporting Countries and its allies to delay the start of voluntary production cuts, along with continued supply losses in Libya, is expected to contribute to an oil market shortfall of about 0.4 million barrels barrels per day. in the last three months of 2024, Citi analysts said.

They added that such a trend could provide temporary support “in the range of $70-75 per barrel.”

Meanwhile, the benchmark could be further boosted by a potential rebound in recently tepid demand from top oil importer China, analysts said.

But they signaled they still anticipate “renewed price weakness” in 2025, with Brent on track to $60 a barrel because of an impending one-million-barrel-a-day surplus.

Crude oil prices rose on Thursday after a very large interest rate cut by the US Federal Reserve sparked a mixed reaction from traders, while concerns about global demand also persisted.

By 3:30 a.m. ET, the Brent contract had gained 0.9% to $74.34 a barrel, while futures (WTI) traded 1.0% higher at $70.58 USD per barrel. Benchmarks recovered after a dip in Asian trade, with Brent in particular nearing its lowest point of the year.

The Fed cut interest rates by 50 basis points on Wednesday and indicated it would announce further cuts this year as the central bank begins an easing cycle to support the economy after a prolonged battle against rising inflation.

Lower interest rates usually bode well for economic activity, but the Fed’s aggressive tapering also raised some concerns about a potential slowdown in broader growth.

While Fed Chairman Jerome Powell moved to calm some of those fears, he also said the Fed has no intention of returning to an era of ultra-low interest rates and that the central bank’s neutral rate will likely be much higher than that seen in the past.

His comments indicated that while interest rates will fall in the short term, the Fed is likely to keep rates higher in the medium to long term.

Meanwhile, US government data released on Wednesday showed a larger-than-expected draw of 1.63 million barrels from inventories, which Citi analysts said was due to lower net imports and domestic production “overriding” a decline of crude oil consumed by refineries.

“U.S. crude oil production was hit by Hurricane Francine, with a peak of 732,000 (barrels per day) of oil production in the offshore Gulf of Mexico (…), the end of the impact reaching by Tuesday (day) September. 17, which should still appear in next week’s data,” Citi analysts said in a note to clients.

While the decline was much larger than expectations for a 0.2mb decline, it was also accompanied by gains in distillate and gasoline inventories. The gains in commodity inventories added to concerns that U.S. fuel demand was cooling as the busy summer travel season ended.