While global demand uncertainty remains high, crude oil prices have made small strides this summer, with crude oil now rising above $90. Some analysts believe that the move by some of the world's largest oil producers could push the price of U.S. West Texas Intermediate crude above $100 in the coming months.
Favorable factors for crude oil prices to continue to rise //
Saudi Arabia's official news agency, citing official sources at the Ministry of Energy, said on Tuesday it would extend the voluntary production cut of 1 million barrels per day until the end of the year. Separately, Russian Deputy Prime Minister Alexander Novok announced that Russia will extend the voluntary cut of an additional 300,000 barrels per day until the end of December.
Phil Flynn, senior market analyst at Price Futures Group, told the media that the extension of the production cut is "very optimistic", which means that oil supply will continue to tighten until the end of the year.
Phil Flynn explained that OPEC and its allies don't want to "let the market speculate whether they will continue to cut production, and this farce will be played out month after month." The three-month extension "does send a message that this organization has taken control of the market." ”
Brent oil traded above $90 a barrel on Tuesday, its highest level so far this year. ICE Eurex closed at $90.04 a barrel, up $1.04, or 1.2 percent. U.S. benchmark West Texas Intermediate crude for October delivery on the New York Mercantile Exchange rose $1.14, or 1.3 percent, to $86.69 a barrel, the highest since Nov. 15.
Peter McNally, head of the global division of industrials, materials and energy at Third Bridge, said the monthly production cuts in Saudi Arabia came during the most demanding season this summer. The timing was clever. Historically, however, demand began to decline in September and refineries began to turn a profit, reducing physical demand for crude oil, he said.
Matt Smith, chief oil analyst for the Americas at Kpler, said Saudi Arabia is well aware that the oil market is transitioning to a period of low demand in the middle of the year and has already cut production for three months, from July to September. Saudi Arabia believes further production cuts are needed to support current prices by the end of the year.
Matt Smith believes that Saudi Arabia also faces some difficulties, such as whether the country is willing to risk losing market share and continue to cut production at the risk of losing market share.
Paul Ciana, a technology strategist at BofA Securities, said in a note on Monday that oil prices had rebounded from key support levels, suggesting the pullback was over and prices could rebound in the coming months. WTI Oil found support when it retested its $62 low this year, and prices started rising from that point. Paul Ciana said the relative strength index, which is a momentum indicator, has appeared, and other technical signals suggest that "oil prices will present a constructive big picture" from the fourth quarter of this year through the second half of 2024.
Paul Ciana said: "This summer, the rally in oil prices has gained momentum, breaking the resistance and suggesting that oil prices may be back to $100-102 per barrel. ”
Matt Smith, chief oil analyst for the Americas at Kpler, believes the additional voluntary production cuts announced by Saudi Arabia would total 180 million barrels, the same amount the United States chose to release from its Strategic Petroleum Reserve last year. According to the U.S. Department of Energy, the total amount of oil in U.S. crude oil reserves as of September 1 was 350.3 million barrels. Last month, that number fell to its lowest level since 1983, according to the Energy Information Administration.
Kobeissi Letter said on social media X that U.S. oil prices have recovered above $85 and are rapidly approaching $90. U.S. reserves "can no longer save" oil consumers. In addition, U.S. crude oil reserves have fallen by about 43% in two years.
But oil prices are difficult to strengthen for a long time //
Stewart Glickman, energy equity analyst at CFRA Research, said "if you're a producer, extending production cuts is the right move," but for the oil market, risks include a weakening or recession in the global economy, both of which can affect global energy demand.
At the same time, there is a discount in the crude oil futures market, which means that "the signal of more spare capacity that may appear in the future puts pressure on forward prices."
Ultimately, Stewart Glickman argues, Saudi Arabia will "seek to regain some of its share [of the oil market] in the future," meaning Saudi production will rise.
Still, Phil Flynn of Price Futures Group believes the risk of $100 a barrel by the end of the year has "risen significantly" since Saudi Arabia and Russia announced production cuts. "The possibility of increased supply in the coming months, and the possibility that this winter may not be as warm as last year, could get us to that price by the end of the year," he said. ”
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