West Texas Intermediate (WTI) crude oil prices surged to a 10-month high and are back to above $90 a barrel driven by the push by Saudi Arabia and Russia to restrict supply. They have removed barrels from the market, depleting oil stocks.
Brent futures rose to a record $94.63 mark in the week ended September 15, their highest since November 2022. Oil prices are also on track for their biggest quarterly increase since Russia's invasion of Ukraine in the first quarter of 2022.
On Monday as well, Brent crude futures climbed 71 cents, or 0.76 percent, to $93.98 a barrel, while the US West Texas Intermediate crude futures extended gains for a second session, trading at $90.63 a barrel, up 60 cents, or 0.67 percent.
Going ahead, experts do not see a major decline in oil prices anytime soon. Instead, some anticipate that it may even touch $100 per barrel.
"Markets fear that this trend could spur more cooling in the US economy, potentially denting crude demand," said domestic brokerage firm Motilal Oswal in a recent report.
But will that be sustainable?
For that, let's first understand why is crude back at over $90 per barrel?
In a recent note, MOSL listed the following reasons behind the recent crude price rise.
- Saudi Arabia’s oil output is likely to remain at 9Mbpd until the end of December, 25 percent lower than its maximum capacity of 12mbpd, which in turn, may lead to more price hikes.
- Further, world oil demand is expected to grow by a healthy 2.2Mbpd, unchanged from the previous assessment, during 2024, it added.
- Also, the resurgence in Chinese consumption, along with the rise in jet fuel demand and petrochemical feedstock is fuelling growth.
- OPEC+ output, as well, has fallen by 2 mb/d with overall losses moderated by sharply higher Iranian flows.
- Global oil inventories are expected to fall by 0.2 Mb/d in Q42023, on the back of recent production cuts.
- Refinery margins hit an eight-month high, as refiners struggled to keep up with oil demand growth, especially for middle distillates.
- Product cracks and margins reached near-record levels due to unplanned outages, feedstock quality issues, supply chain bottlenecks and low stocks.
However, any surprise cut by OPEC once again can bring further positive momentum and push prices higher above $100, cautioned the brokerage.
Why does the sustainability of crude at $100 look difficult? MOSL answers.
- The Biden administration is keen to keep pump prices in check ahead of the presidential election next year, where inflation and fuel costs have already become areas of attack for the Republican party.
- The Fed has vowed to bring inflation back to its long-term target of 2 percent from the 3 percent-plus levels the CPI is hovering at. The central bank has already added 5 percent to interest rates over the past 18 months.
- The US is likely to be less strict in enforcing sanctions against Iran. Already, in recent months this appears to be the case.
- Even though higher oil prices would help Saudi Arabia balance its budget and Russia fund its war machine, triple-digit oil prices could cause US shale producers to increase their supply to lower prices. Plus, higher prices could drive more investment into clean energy.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.