In the final complete week of September, oil prices posted a strong 5% weekly gain, with Brent crude once again testing the $70 threshold. While OPEC+ production increases make this target increasingly challenging over time, oil prices managed to reach this level through rapid rebounds, though they ultimately failed to hold above this key psychological level after significant late-session pullbacks. This marked crude oil's strongest weekly performance since Q3, with consecutive days of gains demonstrating improved market sentiment. Despite Thursday and Friday showing clear signs of overbought conditions requiring correction, prices continued to display strength by rallying during pullback phases, suggesting underlying bullish momentum. However, the late-session retreat from highs, leaving long upper shadows, may signal that this rapid late-September rally has reached completion, with Friday night's spike potentially marking the year's remaining high point.
This week's rally was driven by visible bullish factors that dominated price action. Geopolitical developments served as the primary catalyst for oil's strength, as investors have grown accustomed to such drivers throughout this year's multiple price surges. Ukrainian attacks on Russian refinery ports and facilities, combined with US encouragement for EU cessation of Russian oil purchases and increased Russian sanctions, elevated market concerns about Russian supply beyond expectations. Russia's decision to extend its refined product export suspension through year-end indicates that Ukrainian strikes have created substantial pressure on domestic oil supply security, while also affecting Russian oil exports. Continuous geopolitical disruptions provided ongoing momentum for rapid rebounds within the trading range, with European Brent crude monthly spreads showing notable recovery during this period.
Friday evening's US PCE price index matched expectations, interpreted as a positive signal for Fed rate cuts this year. Additionally, US August consumer spending rose 0.6% month-over-month, slightly exceeding the 0.5% forecast and maintaining steady growth for the second consecutive month, providing Q3 economic support. The data boosted market risk appetite, with oil prices rallying to new weekly highs following the release.
Recent EIA reports over the past two weeks showed continued declines in US crude inventories, with comprehensive petroleum product stocks also showing no significant accumulation. This appears to indicate that crude market oversupply pressures may not be as severe as previously thought, suggesting investor concerns about oversupply may have been excessive. This perspective has gained significant traction this week, leading investors to overlook notable weakness in Middle Eastern physical markets, where Dubai discounts fell sharply from last week's $3.65 high to $1.73, breaking below the $2 threshold for the first time since mid-June. Furthermore, while crude rallied this week, global refined product crack spreads weakened overall. With OPEC+ continuing production increases and peak consumption season essentially over, Q4 crude market inventory accumulation pressure is expected to return later.
EIA crude inventories showing no accumulation? Pressure is building! September waterborne crude surged by 80 million barrels.
Middle Eastern crude benchmark spot premiums continued declining, with Dubai, Murban, and Oman crude prices all falling to multi-week lows, reflecting growing market concerns about oversupply as OPEC+ production increases proceed. Oil tanker rates have surged significantly since September, becoming a focal point. While Shanghai Shipping Exchange data shows rates retreating slightly this week, they remain at absolute highs in recent years. According to latest Clarksons data, VLCC spot weighted averages reached $103,200/day in mid-September, with individual voyages exceeding $150,000/day. This scenario reveals massive crude volumes being deployed to market. Voyage data shows Middle East Gulf September loadings exceeded 165 cargoes, significantly higher than the previous month, with October expected even higher. US Gulf-Far East routes also remain active with extremely limited vessel availability. Behind this phenomenon lies enormous crude volumes in transit. While recent crude inventory data hasn't pressured oil prices, this may represent a brief calm before significant inventory builds, like the eye of a storm. This pressure may manifest in markets over subsequent periods. According to Kpler's high-frequency data tracking, global waterborne crude including floating storage and in-transit volumes increased by 80 million barrels in September compared to end-August. Once this incremental crude reaches destinations, petroleum markets are expected to show very pronounced inventory accumulation.
Geopolitical factors represent the absolute driver of this year's oil rallies, though their short-term impact significantly amplifies price volatility without determining overall price trends. Since September, including Russian oil supply stability concerns, Middle Eastern Israeli confrontations with the broader Islamic world, and South American Venezuelan-US friction have continuously brought geopolitical disruptions to markets. Past week geopolitical disturbances reached peaks, while macroeconomic Fed rate cut cycles represent positive factors for global risk assets. Geopolitical and macro factors have brought considerable oil price volatility this year, with overall bullish impact. OPEC+ accelerated production increases undoubtedly represent bearish factors and core drivers. Market disagreement regarding OPEC+ production impact on oil supply-demand balance remains substantial, with answers gradually emerging through October and Q4. Based on comprehensive factor assessment, key opportunity selection still recommends focusing on shorting opportunities following rally peaks, with Friday night session highs providing rare shorting chances. Pay attention to timing and participate cautiously.