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US oil prices soar past $90 a barrel, inflation concerns mount

US oil prices surged above $90 a barrel last Friday, a 10-month high, following Brent crude’s upward trajectory, driven by mounting concerns about tightening supplies in the coming months.

West Texas Intermediate closed at $91.20 a barrel, marking its first close above $90 this year and the highest since late 2022, registering a gain of over 4% for the week. Brent crude mirrored this surge, closing at $94.27, up 4.3% for the week.

Recent data over the past three weeks clearly links the oil price rebound to rising inflation. US consumer price inflation has climbed from 3% in June to 3.7% in August, with more than half of the increase attributed to higher petrol prices.

These price surges coincide with global inventory declines caused by Saudi Arabia’s one-million-barrel-per-day production cut, along with a smaller reduction of 300,000 barrels a day from Russia, both scheduled to last through the year-end, in addition to cuts from other OPEC+ producers.

Reports from OPEC, the Energy Information Administration, and the International Energy Agency all warned last week of growing competition for supply as inventories are expected to decline for the remainder of 2023.

These supply concerns arise as expectations of higher demand from China, the world’s top importer, have risen following modest improvements in economic activity in August compared to a sluggish July.

The International Energy Agency’s latest report once again underscored the risk of a significant market tightening due to low global inventories, and OPEC predicts a supply-demand deficit of approximately 3.3 million barrels per day by year-end.

Meanwhile, in the US, the number of operating oil rigs increased by two last week, according to energy-services firm Baker Hughes. The oil rig count reached 515, up from 513 on a weekly basis, while the gas rig count increased by eight to 121. Miscellaneous rigs fell by one to five. A year earlier, the US had 599 oil rigs, 162 gas rigs, and two miscellaneous rigs in operation. In total, there were 641 rigs operating in the US last week, compared with 763 a year ago.

In addition to the oil market movements, Newcastle thermal coal prices reached a four-month high last week, with the November front-month contract closing at $169.10 a tonne on the ICE exchange on Friday, the highest since May.

Moving to other commodities, gold prices rose on Friday, settling at $1,945.60 an ounce, a 0.66% increase for the day but a 1.3% decrease for the week. US bond yields also rose, and the US dollar had mixed performance, declining on Friday but showing a slight increase over the week, making it challenging for gold investors to gauge sentiment.

The 10-year T-bond yield increased by 3 points to 4.32% on Friday, up 6 points for the week. The Australian dollar ended the week at 64.34 US cents, slightly down for the day but up by 0.90% for the week.

Copper prices saw gains throughout the week as economic data from China indicated some improvement, albeit less so in the property sector. Comex front-month copper closed at $3.79 a pound, up 2.2% for the week, while LME three-month copper added 0.1% on Friday, ending at $8,417 a tonne.

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