Oil Prices Surge to Highest Level in Over a Year
Oil prices have reached their highest level in over a year during Asian trading hours. This surge comes after crude stocks at a key storage hub fell to their lowest level since July of last year.
According to data from the U.S. Energy Information Administration (EIA), crude inventories in Cushing, Oklahoma dropped to 22 million barrels in the fourth week of September. This is just above the operational minimum and represents a decrease of 943,000 barrels compared to the previous week.
During Asian trading hours, West Texas Intermediate (WTI) futures reached $95.03 per barrel, the highest since August 2022. The global benchmark Brent rose 1.05% to $97.56 a barrel.
Bart Melek, managing director of TD Securities, states that today’s price action seems to be driven by the low inventories at Cushing. He believes that if inventories continue to decline, it will become challenging to get crude out into the market.
Melek forecasts that oil prices will remain at a high level for the rest of the year, with a potential upside risk if OPEC+ continues to restrict supplies.
Robust Deficit Expected
The global oil markets are facing a significant deficit on top of an already substantial shortfall this quarter. This is due to the production 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. This brings Saudi’s crude output to around 9 million barrels per day.
We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.
Bart Melek
managing director, TD Securities
Russia has also pledged to extend its export reduction of 300,000 barrels per day until the end of December.
Malek also highlights that refinery throughputs will decrease in the coming months due to refinery maintenance season approaching. Refinery crude throughput refers to the volume of crude oil a refinery can produce during a given period of time.
Melek points out that it is not in OPEC’s interest for prices to reach triple digits as they are concerned about long-term demand destruction. He projects that OPEC will signal their intention to limit supply less as the year comes to a close.
In recent days, there have been forecasts of oil prices reaching $100 per barrel. Goldman Sachs has raised its 12-month Brent forecast from $93 per barrel to $100, citing sharper inventory draws. The investment bank believes that OPEC will be able to maintain Brent within a range of $80 to $105 in 2024, driven by strong demand growth in the Asia region.
