Crude Oil Prices Hit 10-Month High Due To Supply Curbs

Crude oil prices have surged to 10-month high due on September 15, entering their third consecutive week of accruing gains. 

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In just one week, prices surged by as much as 3%, contributing to a notable 15 percent rise in oil prices for the month of August. Furthermore, there has been a significant 13% year-to-date increase in prices, as per media reports.

The upswing occurred following China's decision to reduce banks' cash reserve requirements by 25 basis points, aimed at stimulating its economic recovery and potentially bolstering oil demand. Another substantial catalyst for this surge has been the robust purchasing activity exhibited by hedge funds in the last two weeks, driven by supply constraints.

Just earlier this week, both the International Energy Agency and the Organization of Petroleum Exporting Countries issued warnings that the market would experience a deficit until the end of the year. Anticipations of a constrained supply surpassed concerns about weaker economic growth.

When observing the price trends, crude oil initiated the year at $82 per barrel (bbl), declined to $70 per bbl in June, and presently stands strong at $94 per bbl. The swift increase in price from $82 per bbl on August 23 to the current $94 per bbl underscores the rapidity of this surge.

Crude oil prices have jumped to above $90 per bbl only due to a sudden supply cut as Saudi Arabia has reduced production, Mark Matthews, head of research at Asia for Julius Baer, was quoted as saying by Moneycontrol. It may not sustain, and will likely fall back to $75 per bbl by 2024 as Saudi Arabia is encouraged to resume supplies due to the competition from other nations.

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Rising crude oil prices will have a direct impact on India as the country depends 85% of the requirement on crude imports. Due to rising oil prices, the Indian government reimposed the windfall tax on domestic production of crude oil in July after a gap of two months.