By Anna Koroleva
Oil is balancing between China, the US and OPEC+, giving food for multidirectional forecasts, which nevertheless fit into a certain corridor. At the same time, as one of the analysts points out, the discount for the Russian grade Urals continues to decline faster than forecasts.
Oil prices have somewhat stabilized after falling, but the market is still dominated by minor moods. The fears of the players are related to the possible dynamics of demand for raw materials, primarily in China. Traders are choosing benchmarks to navigate between concerns about China's faltering economy and declining U.S. oil inventories.
This week, the price of oil has declined after a sharp increase caused by supply cuts from OPEC+. At the same time, global consumption of crude oil is estimated to be growing at a record pace. But banks have cut their growth estimates for China as the country's giant real estate sector is in trouble.
However, the American Petroleum Institute reported that U.S. crude inventories fell by 6.2 million barrels last week. In particular, there was a decrease in inventories at a key oil storage facility in Cushing, Oklahoma. Against this background, in particular, UBS Group AG raised its forecast for Brent at the end of the year by $5 - up to $95 per barrel.
After reaching $88 per barrel last week, oil started the current week with a steady decline, trading in the region of $84.5 per barrel, says Nikolay Vavilov, an expert at Total Research's strategic research department. Investors continue to evaluate the impact of various supply and demand factors.
The latest data showed that retail sales, industrial production and fixed investment in China were below expectations, while urban unemployment rose, affecting the demand outlook for the world's largest oil importer, the expert said.
The Central Bank of China yesterday lowered the key lending rate to support the economy, which was the second reduction this year, Nikolay Vavilov notes. The Chinese economy is not recovering, and the authorities are in no hurry to take any significant action. Fears that the second world economy will continue to slow down and expectations of a slowdown in the global economy as a whole put pressure on oil quotes.
But the efforts of the OPEC+ countries, namely the main participants Saudi Arabia and Russia, which continue to implement a policy of cutting oil production to stabilize supply and demand, helped the Brent benchmark rise by almost 20% since the end of June. The International Energy Agency expects that the reduction in oil supplies will lead to a reduction in stocks before the end of the year.
Brent oil prices after a steady rise since the end of June to 88 dollars per barrel. are retreating slightly, the nearest futures are trading below $85/bbl, confirms Ekaterina Krylova, managing expert of the PSB Center for Analytics and Expertise. But, she is sure, there is no talk of a reversal - rather, this is a short-term decline before a new breakthrough.
“The potential for reduction, in our opinion, is limited to the area of $80-$82.5 per barrel. We believe that the lack of supply of raw materials in the world, seasonal demand, the absence of obvious triggers for tightening the Fed's policy and stimulating the Chinese economy create prerequisites for continued growth in oil prices to $90/bbl,” the expert says.
Economic statistics for China in July on industrial production and retail sales came out, of course, weaker than last month, admits Ekaterina Krylova. But the Central Bank of this country unexpectedly lowered the rate on loans for a year under the medium-term lending program (MLF), to 2.5% per annum from 2.65%. Also, China's main bank injected 401 billion yuan ($55.43 billion) into the financial system as part of this program. The base rate (LPR) may also be reduced next week (currently 3.55%). This, the analyst is sure, can help boost domestic demand and support the growth of the Chinese economy, and hence the demand for oil.
The main factor determining oil prices at the moment is concern about oil demand in China due to the deteriorating economic indicators in this country, said Ronald Smith, senior analyst at BCS World of Investments. In addition, US oil production jumped by 400,000 barrels per day last week, possibly signaling that the market is better off than previously thought.
“Our forecast for Brent price for Q4. 2023 remains at $85 per barrel, very close to current levels, but we expect oil to return to above $70 next year. Meanwhile, the discount on Urals continues to decline, which we generally expected, but the process is moving faster than our forecasts,” Ronald Smith concludes.
This article originally appeared in Russian at expert.ru