According to the International Energy Agency, Saudi Arabia’s crude oil output fell to a two-year low of nine million barrels per day in July and August, and Russian oil shipments dropped to their lowest level since March 2021 in June. For the first time since May, Brent Crude finished above $80 a barrel, as supplies throughout the world are expected to drastically decline. Not only are recent Russian oil reductions and Saudi Arabia’s lollipop protection cuts causing the sour crude market to tighten, but many negative market narratives are also beginning to fall apart. Due to Russia’s apparent failure to restrict output in the past, many people were concerned that Saudi Arabia and Russia were at conflict, but there is growing evidence that this is not the case. Even Saudi Arabia has benefited from the favorable pricing coming out of Russia as its imports of Russian fuel oil reached an all-time high.
In spite of predictions that oil demand would decline due to rising global interest rates, it is actually increasing. According to the International Energy Agency (IEA), this year’s oil demand will reach a record-breaking 102.1 million barrels per day, an increase of 2 million barrels per day over last year. And even though that is lower than their earlier projections, they increased their prediction for the demand for oil in 2024 by 1.1 million barrels per day. Since the International Energy Agency frequently overestimates demand, as we have already mentioned, we anticipate an upward revision in the upcoming report. Even the International Monetary Fund (IMF) acknowledged that the first quarter’s global economic growth exceeded their expectations in comparison to their April prediction. More importantly, though, is that the IMF anticipated that core inflation is slowing down and that global headline inflation may have peaked.
The consumer price index released yesterday showed some signs of that with a smaller-than-anticipated 0.2% increase in June and a 3.0% year-over-year increase, the smallest increase since 2021. However, it also means that today’s producer price index could be another catalyst for oil to move higher if it comes in suggesting that inflation is at a peak. The weak inflation data gave oil a boost since it decreased the likelihood that the Fed will have to become more aggressive in raising interest rates. Yes, there is still work to do to get inflation to the proper level in all G20 countries.
The IEA also said that although the global oil supply increased by 480 kb/d to 101.8 mb/d in June, it is anticipated to decline significantly this month due to a sharp 1.0 mb/d voluntary output cut by Saudi Arabia. Global production is anticipated to rise to 101.5 mb/d in 2023, up 1.6 mb/d, as non-OPEC+ output rises by 1.9 mb/d. The increase in supply is expected to come entirely from non-OPEC+ in 2024, when it will grow by 1.2 mb/d to a new record of 102.8 mb/d. Global observed oil inventories increased by 19.4 mb in May, reaching its highest level since September 2021 thanks to a significant 44.2mb build in non-OECD nations, driven by a spike in China. OECD oil stocks, however, only decreased by a tiny 1.8 mb.
Oil on water decreased by 23 mb as a result of further OPEC+ output cutbacks, which caused seaborne oil exports to reach their lowest level since January. According to preliminary data, June’s draw was 9.2 megabytes. According to the IEA, the United States’ energy secretary Jennifer Granholm is taking steps to replenish the strategic reserve before the end of Biden’s second term since global inventories are anticipated to severely decline by at least 9.2 million barrels. Well, today must overcome a significant obstacle: the WTI price resistance of $76.00 per barrel. If we close above that level, we should quickly test the area above $80.00 per barrel of WTI. The weak producer price index may contribute to this outcome. In contrast to previous year, there won’t be any additional oil on the market because the production that would have started because of higher prices hasn’t happened. According to the EIA, U.S. oil production decreased week over week.
Please note that this article does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.