Oil prices mark their first gain in 4 sessions

Price action

• West Texas Intermediate crude
  CL00,
  +0.55%
  for November delivery
  CL.1,
  +0.55%

  CLX23,
  +0.55%
  rose 41 cents, or 0.5%, to settle at $89.23 a barrel on the New York Mercantile Exchange, after ending Monday at its lowest since Sept. 13.

• December Brent crude
  BRN00,
  +0.59%

  BRNZ23,
  +0.59%,
  the global benchmark, added 21 cents, or 0.2%, at $90.92 a barrel on ICE Futures Europe. Brent on Monday closed at its lowest since Sept. 11.

• November gasoline
  RBX23,
  +0.42%
  settled at $2.36 a gallon, down 2.2%, while November heating oil
  HOX23,
  -0.75%
  shed 0.8% to $3.20 a gallon.

• Natural gas for November delivery
  NGX23,
  +1.45%
  ended at $2.95 per million British thermal units, up 3.8% for the session after losing 3% on Monday.

Market drivers

Analysts said crude was ripe for profit-taking after a rally last week that briefly took WTI above $95 a barrel for the first time since August 2022. Tightening supplies and expectations for a significant deficit in the fourth quarter have helped propel the crude rally. A production cut of 1 million barrels a day by Saudi Arabia, which was implemented in July, has been cited as a primary driver.

The path of least resistance is still higher for oil right now “although the countertrend pullback is not necessarily over just yet,” said Tyler Richey, co-editor at Sevens Report Research.

“Eventually it will be time to ‘sell the recession news’ in oil as demand tends to fall off sharply amid the onset of an economic downturn, but the evidence does not definitively suggest we are at that point just yet,” he told MarketWatch. Another run towards $100 is “a possibility depending on the news flow and economic data trends in the near term.”

A surging U.S. dollar and a rise in Treasury yields, helped spark profit-taking in crude, analysts said. A stronger dollar makes crude more expensive to users of other currencies, while rising yields raise worries about the economic outlook and increase the opportunity cost of holding nonyielding assets.

Oil held up Tuesday, however, as the yield on the 10-year note hit its highest in 16 years.

More solid support for oil may only come with a drop to $78, which is the 50-week moving average, said Alex Kuptsikevich, senior market analyst at FxPro, in market commentary, but we wouldn’t be surprised to see a drop to $75 by the end of the year.”

Elsewhere, Turkey’s energy minister on Monday said the country would restart a pipeline from Iraq that has been closed for around six months. The pipeline would be able to provide nearly 500,000 barrels a day of crude to global markets, the minister said, according to Reuters.

Traders are also looking ahead to an OPEC+ meeting of the Joint Ministerial Monitoring Committee, or JMMC, on Wednesday. The panel is made up of oil ministers from members of the Organization of the Petroleum Exporting Countries and its Russia-led allies and has the authority to call for a full OPEC+ meeting if it decides one is needed.

Read: Oil rally shows ‘OPEC+ plan has been working’ as investors await next Saudi move

The panel isn’t expected to alter OPEC+ production plans, but traders will be braced for any announcement from Saudi Arabia around its voluntary production cut of 1 million barrels a day, which Riyadh announced in September would be extended through year-end, but could be subject to adjustment.

Over in the U.S., the Energy Information Administration will release its weekly domestic petroleum supply report Wednesday morning.

On average for the week ended Sept. 29, analysts expect the report to show a supply decline of 1.4 million barrels for crude, according to a survey conducted by S&P Global Commodity Insights. Gasoline stockpiles are expected to be unchanged for the week, while distillate inventories are forecast to fall by 1.6 million barrels.