Oil Prices Surge to Highest Level in over a Year as Crude Stocks Hit Record Low
Oil prices have soared to their highest level in over a year, driven by falling crude stocks at a major storage hub. U.S. West Texas Intermediate (WTI) futures reached $95.03 per barrel during Asian trading hours, the highest since August last year. Global benchmark Brent rose 1.05% to $97.56 a barrel. This surge comes as crude inventories at Cushing, Oklahoma fell to 22 million barrels, the lowest level since July last year.
According to data from the U.S. Energy Information Administration (EIA), crude stocks in Cushing dropped by 943,000 barrels compared to the previous week. If inventories continue to decline, it could pose challenges in getting crude into the market. Bart Melek, Managing Director of TD Securities, believes that prices will remain high for the rest of the year, especially if the oil cartel OPEC+ maintains tight supplies.
The global oil market is already facing a significant shortfall in production, due to cuts implemented by OPEC and its allies. Saudi Arabia, the leading member of OPEC+, extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year. Russia has also pledged to extend its export reduction of 300,000 barrels per day until December. The combination of these production cuts and increasing demand has created a robust deficit in the oil market.
However, Melek cautions that the current rally may not be permanent. He predicts that refinery throughputs will decline as refinery maintenance season approaches, which could impact oil prices. He also believes that OPEC is unlikely to want prices to rise significantly to triple digits, as it could lead to long-term demand destruction. He expects that OPEC will signal that they are done with these strong measures to limit supply as we approach the end of the year.
While some forecasts have suggested that oil prices could reach $100 per barrel, Melek believes that they will likely remain in the $80 to $105 range in 2024. Goldman Sachs recently raised its Brent forecast from $93 per barrel to $100, citing “modestly sharper inventory draws” and strong demand growth from the Asia region.
In conclusion, oil prices have surged to their highest level in over a year due to falling crude stocks and production cuts by OPEC+ and Russia. While prices may remain high for the rest of the year, there are potential factors that could impact them in the future. The oil market is closely watching for any signals from OPEC regarding the future of supply cuts.