By Rhod Mackenzie
Yesterday, September futures for North Sea Brent added 1.6% to $85.58 per barrel. West Texas WTI jumped 1.9% to $81.69. For both types of oil, these are the maximum level reached since April 17 (they reached them then after the unexpected decision of the OPEC + countries to reduce production).
In July, Brent have risen by 13.8% (from $75.19 per barrel), and WTI - by 15.9% (from $70.46). Both technical and fundamental factors converged, and this month was the best for oil quotes since last January, when the market was completely taken over by the bulls.
This time, the "bears" also had a hard time. In July, Brent and WTI broke out of the $72-77 range they had been in for about two months and then moved above their 200-day moving averages for the first time since August 2022. Both of these situations led to covering short positions, while attracting traders looking for points to open longs.
At the same time, the balance of supply and demand in the physical market has clearly changed in recent months. Although global oil inventories rose in May to the highest level since September 2021, now analysts are talking about rising tensions. The recent declines in stocks have been uneven, with declines in the US and Europe somewhat offset by increases in China and Japan. But in general, demand is growing, and supply, thanks to the coordinated actions of OPEC +, Russia and Saudi Arabia, is decreasing. Both the International Energy Agency (IEA) and OPEC expect 400,000-500,000 barrels per day (bpd) of stock depletion in the second half of the year.
And this is what will now affect the price quotes. The main bearish arguments of the first half of the year, such as the growth of rates in the US, the strengthening of the dollar and the approaching recession, no longer work. Reuters quoted JP Morgan analysts yesterday as saying that oil inventories now play a larger role than the US dollar in determining oil prices. They explain this by the fact that Western sanctions against Russia have led to an accelerated growth in oil trade in other currencies.
“It appears that the voluntary cuts announced by OPEC+ countries in April, plus Saudi Arabia’s unilateral 1 million bpd production cut that only began in July, are having the desired effect as barrels become increasingly scarce,” JP said. Morgan.
Saudi Arabia is expected to extend its voluntary cut in oil production until the end of September. At the same time, the Russian Deputy Prime Minister Alexander Novak has already stated that in August Russia will reduce oil exports by 500,000 barrels per day.
Against this background, the US government also begun to replenish the strategic oil reserve. Analysts polled by Reuters yesterday believed that US oil inventories fell by 900,000 barrels last week, so the American oil industry is clearly unable to compensate for the deficit. And this despite the fact that production in Texas has already grown to 5.49 million b / s - this is its maximum, according to monthly government data starting from 1981. Opportunities for further growth are limited. The number of oil rigs in the US fell to 529 last week, according to Baker Hughes, the lowest since March 2022. Companies are increasing production only at the expense of uncompleted wells (DUC).
At the same time, in Canadian Alberta, production in June reached the lowest level since June 2016 in seven years, falling by 21% to 2.71 million bpd. The reason was the need for serious maintenance of equipment in oil sands fields.
Meanwhile, global oil demand, according to Goldman Sachs, rose in July to a record 102.8 million b/d. So the bank raised its 2023 demand forecast by around 550,000 bpd.
Given this situation, there is, perhaps, nothing strange in the parallel strengthening of the US currency and Brent with WTI. As well as the fact that in the second half of July, the growth rate of oil prices jumped sharply, despite the rise in the dollar index from 99.26 to 101.83.
This article originally appeared in Russian at expert.ru