Oil extends gains as Saudi reiterates support to market

Markets were quiet as investors wait for the FOMC meeting later this week. However, signs of tightness in the oil market continued to push the energy sector higher.

Brent crude closed near a 10-month high amid the spectre of ongoing supply constraints. The Saudi Arabian Energy Minister warned that the “jury is still out” on demand in China. This raises the prospect of the OPEC producer maintaining its unilateral production cut for the foreseeable future. He also reiterated that OPEC is working to keep oil markets stable and improve global security. However, he didn’t mention any specific price level for crude during a discussion at the World Petroleum Congress in Calgary. Prices suffered some wobbles earlier in the session when Saudi Aramco’s CEO lowered the company’s long-term outlook for demand. He now expects global demand to only reach 110mb/d by 2030, down from the previous estimate of 125mb/d. Physical markets continue to flash warning signs of tightness. US diesel prices hit a record high this year of USD140/bbl, while Europe’s equivalent is up 60% since August. Part of the reason is declining exports from Russia. They dipped almost a third to 63kt/d in the first two weeks of September amid seasonal refinery maintenance. Stronger exports from China are failing to ease the global tightness. ?

European gas fell as supply risks eased. Norway’s Troll field has begun ramping up output, albeit with some delays after a series of maintenance issues. It’s likely to be back to 16% of its technical capacity by the middle of the week. Output from Chevron’s Wheatstone LNG export facility resumed full production after a fault last week. However, strike action continues to hangover the market. Workers have downed tools but a hearing on the dispute is set for 22 September. Disruptions from the industrial action have been limited so far, but the longer the strike goes the greater the prospect of an impact on output. News of Wheatstone’s resumption triggered a selloff in the North Asian LNG market. However, strong Chinese demand limited the losses. August imports rose 34% y/y to 6.3mt, according to China Customs data.

Copper eased as markets braced for interest rate policy decisions from central banks this week. While the Fed is expected to keep rates on hold, strong economic data is raising the prospect of rates remaining high for the foreseeable future. Treasury Secretary Janet Yellen said the US economy is showing no signs of a looming recession, with the labour market still healthy and industrial output rising.

Gold managed to push higher as inflation expectations fell. This should encourage policy makers to hold rates steady at this week’s FOMC meeting. The prospect of strong demand from China also buoyed sentiment. The PBoC lifted temporary curbs on imports that were imposed in a bid to defend the renminbi.