Will oil prices hit $100 per barrel soon?
Oil prices could hit the $100 per barrel mark in the coming months despite the weakness in China’s economy, market experts say amid forecasts that the world’s two largest producers, Saudi Arabia and Russia, to extend voluntary output cuts.
Even though the seven-week old oil price rally due to tightening oil markets has suddenly halted after weak economic data coming from China weighed on market sentiment, a sustained price rally could continue to widening supply shortfall, analysts said.
They argue that a highly effective producer output restraint led by Saudi Arabia will create the conditions for a price rally that will take Brent prices above this year’s high at $89.09 per barrel onto their Q4-average forecast at $93 per barrel, with a likely intra-quarter high above $100 per barrel.
Tightening global oil supplies
Global oil supplies have become increasingly tight after Saudi Arabia and Russia cut production. The kingdom is expected to roll over the voluntary oil cut of 1 million barrels per day (bpd) for a third consecutive month into October amid uncertainty about supplies and as the kingdom targets pulling down global inventories further, analysts said.
“The crucial factor for oil is the ongoing supply cuts,” Cole Smead, president and portfolio manager at Smead Capital Management told BBN Bloomberg. “China’s underwhelming economic performance is as bad as it gets and still, oil prices have not fallen apart,” he said, adding that the supply side calls for faster price moves higher than the market has been probably expecting.
Saudi Arabia has extended its voluntary cut into September, with the country’s energy ministry saying that it could be “extended, or extended and deepened.” Russia will also cut oil exports by 300,000 bpd in September, according to Deputy Prime Minister Alexander Novak.
The cuts from Opec+ and Saudi Arabia, coupled with expected continued strength in demand, are set to result in inventory draws for the rest of the year, supporting oil prices, said analysts. “There should be money being thrown around trying to take advantage because if we wait back to $100 or $120 a barrel, I think people are going to feel ‘Gosh, I really missed that,” Smead told BBN Bloomberg.
Oil and Gas
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