Oil prices boosted by six weeks of gains as supplies tighten worldwide
Oil markets will open trading on Monday having recorded six weeks of gains across both major benchmarks, as tightening supplies bolster prices.
Brent Crude finished last week’s trading sessions at $86.24 per barrel – recording a $1.10 boost on Friday – while WTI Crude was up $1.27 at $82.82 per barrel, their highest levels since mid-April.
This follows top producers and OPEC+ members Saudi Arabia and Russia extending swingeing cuts of 1m barrels per day and 300,000 barrels per day respectively through September, raising concerns of undersupply in the market later this year.
It comes after consistent predictions of supply deficits in the second half of the year from OPEC and the International Energy Agency, with both organisations set to release their latest monthly reports on the market next week, which will predict pricing behaviour over the rest of the year.
As things currently stand, the IEA is forecasting a deficit of 2m barrels per day while OPEC is predicting a shortfall of 2.5m barrels per day, with the US unable to plug the gap due to marginal output increases.
Last week, the US Energy Information Administration revealed that the country’s crude oil inventory declined by a record 17m barrels last week as exports and refiners’ input of crude oil ramped up in the summer travel season.
Commerzbank analyst Carsten Fritsch said: “Assuming there are no downward revisions on the demand side, the supply deficit in the second half of the year is therefore likely to be at least as high as has been anticipated so far, which should continue to lend tailwind to oil prices.”
UBS expects Brent crude prices to trade in the $85 to $90 per barrel range over the coming months – largely stable at an elevated range – with scope for further rallies if OPEC makes more cuts.
As for potential headwinds, Chinese crude imports could decline, having been elevated above domestic needs for the past two months.
There is also little sign of a robust recovery in European markets, with the Bank of England raising its interest rates to a 15-year peak this week at 5.25 per cent.
Separately, the British government has labelled its price cap on Russian oil as a success, with Kremlin income sliding 20 per cent between January and March 2023 compared to a year ago.
Independent research from the the Centre for Research on Energy and Clean Air has estimated that the price cap on crude oil is costing Russia around €160m per day.
Treasury lords minister Baroness Penn said: “The oil price cap is succeeding in its dual objectives – bearing down on Putin’s most lucrative source of revenues that could otherwise be used to fund his illegal war, while ensuring that vulnerable countries can continue to secure affordable oil.
“The oil price cap forms a critical part of the largest and most severe package of sanctions ever imposed on a major economy. We will continue to keep the pressure on Russia alongside our international partners.”
This follows the G7 collectively confirming plans to cap the price of Kremlin-backed seaborne oil and refined oil products in September 2022 following Russia’s invasion of Ukraine.