Oil set for largest monthly gains in over a year.
Oil set for largest monthly gains in over a year.
Oil Prices Rally as Saudi Arabia Extends Output Cuts
LONDON, July 31 (ANBLE) – Oil prices are experiencing their most significant monthly gains in over a year, thanks to the expectation that Saudi Arabia will extend voluntary output cuts into September, thus tightening global supply. The positive outlook has created excitement among market enthusiasts, leading to optimism about the future of oil prices.
Brent crude futures and U.S. West Texas Intermediate have both seen notable increases. Brent crude futures rose by 60 cents to reach $85.59 a barrel, while U.S. West Texas Intermediate crude increased by 73 cents to $81.31 a barrel1. These prices are the highest the market has seen since April, further fueling speculation and expectations for sustained growth.
Both Brent and WTI have been gaining momentum, settling at their highest levels since April2. These five consecutive weeks of gains have marked the most significant monthly increase seen since January 2022, instilling confidence in oil investors and traders.
One key factor contributing to the positive sentiment surrounding oil prices is the potential extension of Saudi Arabia’s voluntary oil output cut of 1 million barrels per day (bpd)3. Analysts anticipate that this cut will be extended for another month, including September, further tightening the global supply. The market is eagerly awaiting an announcement from Saudi Arabia on this matter.
“There is bull-twitch in the market’s antenna, something which Saudi will most definitely look to aggravate with a roll in their production cut,” commented PVM analyst John Evans4. This expectation suggests that oil prices will likely continue their upward trajectory, at least in the short term5.
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The impact of Saudi Arabia’s previous output cuts is already evident, as oil inventories have started to decline in some regions, with the United States being particularly affected6. The strong demand for oil has outpaced the available supply, creating further upward pressure on prices.
Goldman Sachs analysts shared their insights on the current situation, expressing optimism about the future of oil prices7. They noted that oil prices have risen by 18% since mid-June, driven by record-high demand and Saudi supply cuts. The market sentiment has shifted from pessimistic to optimistic, with deficits returning to the market.
According to Goldman Sachs, global oil demand reached a record 102.8 million bpd in July8. They have also revised their 2023 demand estimates upward by around 550,000 bpd. This revision is based on stronger economic growth projections for India and the United States. However, there was a slight downgrade in China’s consumption forecast9.
Despite the positive outlook, a recent poll conducted by ANBLE among 37 analysts suggests that oil prices may encounter some challenges10. The poll predicted that high interest rates would curb demand, offsetting the impact of OPEC+ production cuts on supply.
The survey concludes that front month Brent oil is expected to average $81.95 a barrel in 2023, slightly lower than the June consensus of $83.03. Nevertheless, the current levels of around $85 still reflect a highly positive market sentiment11.
In conclusion, oil prices are experiencing substantial gains due to the expected extension of Saudi Arabia’s voluntary output cuts. This decision is anticipated to tighten global supply and sustain the upward trajectory of oil prices1213. However, concerns persist about the impact of high interest rates on demand, potentially offsetting the positive effect of OPEC+ production cuts on supply in the long run14. Nevertheless, for now, investors and traders can enjoy the positive market outlook and remain hopeful for continued growth and stability in the oil sector.