End of Production Cut Headwinds? Soaring International Oil Prices Fall After 10 Days

Saudi-Russia Production Cut Cooperation
Will Oil Prices Continue to Trend Upward?

International oil prices, which had been rising sharply due to coordinated production cuts by Saudi Arabia and Russia, fell for the first time in 10 trading days. Considering the global economic situation, including China's economic slowdown and concerns over U.S. tightening, there are also observations that oil prices will enter a path that limits further increases.

On the 7th (local time) at the New York Mercantile Exchange, the closing price of October delivery West Texas Intermediate (WTI) crude oil futures was $86.87 per barrel, down $0.67 (-0.8%) from the previous day. After rising for nine consecutive trading days due to concerns over supply reductions, prices turned down for the first time in 10 trading days. WTI has been on an upward trend in the second half of the year since hitting a low of $67.70 in June.

At the London ICE Futures Exchange, the closing price of November Brent crude oil futures was $89.92 per barrel, down $0.68 (-0.8%) from the previous session. Brent crude continued its seven-day consecutive rise, surpassing the $90 per barrel mark the day before, but fell back to the $80 range on this day.

The growing perception that oil prices had risen excessively in a short period increased downward adjustment pressure on international oil prices. The view that Iranian and Venezuelan crude could become alternatives if oil prices remain strong also constrained further price increases.

China’s export and import data released on the day also acted as a bearish factor for oil prices. Although China’s crude oil imports in August surged 30.9% year-on-year, exports decreased by 8.8%, raising concerns about a decline in global crude oil demand.

[Image source=Reuters Yonhap News]

Despite downward pressure on oil prices from concerns about China’s real estate-driven economic issues and U.S. tightening, the perception that the economy has passed its bottom is expected to support the oil price floor through the production cut stance. Leon Lee, a researcher at CMC Markets, said, "The bearish factors for oil prices have disappeared due to supply constraints," but also noted the need to consider the expansion of upward pressure from demand reduction as summer demand may have peaked and could decline.

Earlier, Saudi Arabia and Russia announced on the 5th that they would extend voluntary production cuts until December. The expected supply shortage from Saudi and Russian cuts is estimated at 300,000 to 1 million barrels per day, which analysts say is not excessively large compared to past global crude oil supply and demand.