Oil rebounds as OPEC output cut prospect offsets demand concerns

Front-month ICE Brent has increased by $0.83/bbl on the day from Friday, to $100.87/bbl at 09.00 GMT.

PHOTO: Crude inches higher on expectations of OPEC supply cut . Getty Images

Upward pressure:

Increasing support for Saudi Arabia’s proposal to cut oil production is expected to push prices higher. According to Reuters, UAE is the latest OPEC member to support output cut proposal ahead of the OPEC+ meeting on 5 September. Iran, Kuwait, Algeria and Venezuela have already expressed their support for this proposal.

UBS has forecast Brent to climb to $125/bbl by the end of this year.

“We continue to believe that the recent decline in oil prices does not fully account for constraints on global supply, and we expect the price to rebound to $125 a barrel by the end of the year,” UBS said in a recently released research note.

Recent clashes and civil unrest in Libya have raised concerns over disruption of oil supply from the country.

UBS writes, “new disruptions in Libya could also weigh on OPEC+ exports, while Iranian requests on sanction guarantees might prevent Iranian barrels from returning to the market.”

Downward pressure:

US Federal Reserve Chairman Jerome Powell’s ultra-hawkish comments on imposing more large interest rate hikes can weigh on the crude prices. He acknowledged that the move would cause “some pain” to the economy.

“But a failure to restore price stability would mean far greater pain,” Powell said at Fed’s annual economic symposium in Jackson Hole.

By Konica Bhatt

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