Analysts predict that oil prices are likely to rise further this week, and the rally could continue into the coming weeks. The question on everyone’s mind is: how far will OPEC allow prices to rise before tapering its production cuts?
“Strong market fundamentals are propelling oil prices higher this week, on track to rise for a fourth consecutive week,” said Claudio Galimberti, director of global market analysis at Rystad Energy. Note this week.
“Falling crude exports from OPEC and Russia as refinery runs ramp up ahead of the summer peak are contributing to a tighter-than-expected market and prices are reacting accordingly,” Galimberti wrote, adding that the growing likelihood of a U.S. interest rate cut and ongoing geopolitical tensions in the Middle East were also contributing factors.
Oil prices have been trending higher for three weeks, and got a boost this week after the Energy Information Administration projected a big drawdown in inventories for the week ending June 28, of 12.2 million barrels, with fuel inventories also falling, though to a smaller extent.
The figures support expectations that the peak driving season in the U.S. is driving oil demand as usual, despite the continuing tough economic environment, especially on interest rates.
AAA predicted earlier this week that a record 71 million Americans will travel over the Fourth of July weekend, more than they did before the pandemic. “With summer vacations in full swing and remote work becoming more flexible, more Americans are taking longer trips around the Fourth of July,” AAA senior vice president of travel Paula Twidale said, citing NBC.
“We expect this Fourth of July week to be our busiest ever, with 5.7 million more people traveling compared to 2019,” she said, noting that the majority of those people — more than 60 million people — will travel by car, which will directly impact fuel demand and drive up oil prices.
Meanwhile, as Rystad Energy’s Galimberti pointed out, OPEC oil exports fell in June just before the peak of the U.S. driving season, when production growth is starting to slow in response to prices.
“OPEC+ exports, led by Gulf countries and Iraq, were already down significantly in June, partly due to a summer surge in crude consumption amid scorching heat in the Middle East,” Energy Aspects said in a note this week. A Reuters poll showed that despite rising crude production, carried out Based on vessel data and industry sources.
The estimated increase was an unremarkable 70,000 barrels per day, with the 50,000 barrels per day coming from additional production in Nigeria, despite the state-run oil company declaring a production emergency.
Oil theft and pipeline vandalism have plagued Nigeria’s upstream oil and gas industry for years, driving major companies out of the country and often causing force majeure at key crude export terminals. Pipeline vandalism and oil theft, along with a lack of investment in production capacity, have made Nigeria the country with the lowest crude oil production among OPEC+ allies. Shortages in production led OPEC to cut Nigeria’s oil production quotas last year.
Adding to all these bullish factors, hurricane season has begun in the U.S., which could disrupt production and refining operations along the Gulf Coast. Analysts at Standard Chartered Bank said earlier this week that strong fundamentals like those seen today could push oil prices above $90 a barrel and keep them there. But the answer to the OPEC question is it will be a while before the cartel decides to scale back production cuts. That may require Brent to hit $100.
By Irina Slav of Oilprice.com
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