The Organization of Petroleum Exporting Countries (OPEC) announced a
significant reduction in production during July, attributed to substantial
cuts implemented by Saudi Arabia and Russia. While OPEC maintained its
global oil demand projections for both 2023 and 2024, a slight upward
revision was made to its forecast for worldwide economic growth. The
convergence of a positive demand outlook and indications of tightening
global supplies fuelled a rally in oil prices over the past two months with
WTI crude reaching a 10-month peak.
However, this optimistic sentiment has been tempered by several factors.
Concerns about deteriorating economic conditions in China, coupled with the
potential imposition of elevated U.S. interest rates, cast uncertainty over
OPEC’s positive projection. The appreciation of the U.S. dollar, reflecting
expectations of prolonged higher interest rates, did not manage to exert
downward pressure on recent oil price gains.
China, the world’s largest oil importer, emerged as a focal point of
concern in the oil markets. Recent discouraging trade and inflation data,
and the revelation of a decline in China’s oil imports, eroded optimism
about a robust demand recovery. The nation grapples with the potential of a
debt crisis in its property sector, posing a further threat to growth.
Additionally, newly imposed investment restrictions on China by the U.S.
raised apprehensions of a rekindled trade conflict.
Global oil markets are poised to experience a substantial supply deficit of
over 2 million barrels per day during the current quarter, predominantly
attributed to Saudi Arabia’s production reduction. Output from OPEC
plummeted in the past month, as the kingdom unilaterally implemented
cutbacks to stabilize markets. The Saudi-led production cut is set to
continue in the upcoming months, potentially causing OPEC’s average
production rate for the quarter to be approximately 27.3 million barrels
per day—roughly 2.26 million barrels per day lower than consumer demand.
This situation could result in the most pronounced inventory decline
observed in two years.
The surge in oil prices was driven by escalating global consumption and the
supply constraints imposed by OPEC and its allies collectively known as
OPEC+. This has led to a depletion of inventories in the United States and
other regions. Anticipating sustained OPEC+ supply reductions, the rest of
the year could witness a gradual erosion of oil inventories, potentially
leading to further price appreciation. However, these gains might be
curtailed by impending economic headwinds projected to constrain global
demand growth in 2024, as highlighted by the International Energy Agency
(IEA).
SourceL TradingView
Oil prices are on track for their seventh consecutive week of advancement,
with Wednesday’s price action breaking above its key resistance of $83.53,
confirming that the prior down trend has reversed course and a new
secondary up trend has started. The Relative Strength Index indicator is
gradually improving also pointing to higher price levels in the months
ahead. Given the bullish breakout on the daily chart and the improvement in
the momentum conditions levels to $92.00 appear feasible over the
medium-term.
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