Oil prices were little changed on Tuesday, trading near a three-month high reached on Monday, with signs of global supply tightening as producers imposed production cuts and strong demand in the US, the world’s largest fuel consumer.
Brent crude futures for October were $85.25 a barrel at 0402 GMT, 18 cents, or 0.2%, lower than the close. Front-moon Brent hit its highest level since April 13 on Monday.
West Texas Intermediate crude (WTI) traded at $81.64 a barrel, down 0.2%, or 16 cents, from the consensus in the previous session, its highest level since April 14.
Oil prices risk a correction as markets may have overbought last month.
However, the softening US dollar and China’s policy optimism are adding to the upside for crude oil futures. A weaker dollar makes dollar-priced oil cheaper for those holding other currencies. Signs of a soft landing US economy also improved the demand outlook for oil.
A survey on Tuesday also showed that China’s factory activity began to contract in July as supply, demand, and export orders worsened in stagnant market conditions.
Chinese authorities issued additional policy guidelines on Monday to boost its economy and domestic consumption after manufacturing activity slumped for a fourth month in July, but no concrete measures were taken.
In June, OPEC+ agreed on a broad memorandum to limit oil supply until 2024, and Saudi Arabia promised an additional 1 million barrels per day voluntary cut for July. On July 3, Saudi Arabia said the cut would include August, adding that it could be extended further.
Oil prices are expected to reach 2023 price peaks ahead of the ministerial meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its allies this Friday. Also at the meeting, the prospect of Saudi Arabia extending voluntary supply cuts for another month is a potential catalyst.
Cuts in Saudi Arabia were slightly below target, down 860,000 bpd in July, while OPEC’s total output was 840,000 bpd lower, according to a survey on Monday.
Data showing supply cuts coincided with figures released by the US on Monday that showed fuel demand in May rose to 20.78 million barrels, the highest level since August 2019. According to data from the Energy Information Administration (EIA), demand for gasoline, expressed as a product supplied to the market, rose to 9.11 million barrels, the highest level since June 2022.
U.S. crude oil and gasoline inventories were expected to drop last week, according to a survey that estimated crude inventories had dropped by an average of 900,000 barrels in the week through July 28.
