High oil prices.. calls for caution
The drop in US commercial inventories last Wednesday led to a jump in oil prices, which is a wave of losses that lasted for two consecutive weeks, as Brent achieved the largest increase in a week since late July, by 5.5%, or $4.6, to $88.55. While West Texas weekly gains were the largest since March, up 7.2%, or $5.72, to $85.55, shrinking the difference between West Texas and Brent prices to $3. And the oil markets considered that this sharp decline in US inventories is a step towards balancing supply and demand, which will compensate for the failures of global economic indicators. Rather, it is a reflection of the continuation of OPEC + decisions to reduce mandatory and voluntary production, which boosted the rise in spot prices. This can also be explained by the inability of shale oil companies to increase their production at a rapid rate and at lower costs, which prompted them to withdraw from their inventories to make the most of the rise in immediate and short-term prices at the expense of long-term contracts.
During the last five of the six weeks, US commercial oil inventories have decreased by only 19 million barrels since July 14, but the decline in inventories during the week ending August 25 is the largest by 10.6 million barrels from the week before, despite the increase in oil exports only by 0.270 million barrels. per day to 4.528 million barrels per day, and a decrease in imports by 0.316 million barrels per day to 6.617 million barrels per day, i.e. net exports (-0.46) million barrels per day. Refinery inputs fell by 0.173 million barrels per day to 16.6 million barrels per day, while gasoline inventories rose by 0.2 million barrels, according to the US Energy Information Administration. Baker Hughes indicated that the number of active US oil platforms decreased by about 109 platforms in the last period of 2023, and reached its lowest levels last month since February 2022. However, production continued to increase during the past weeks, to settle at 12.8 million barrels per day in the week before last. This may not enable shale oil companies to maintain the current average production in the current year without a sharp increase in drilling activity.
By analyzing the above numbers, we find that they do not explain the reasons for the sharp decline in US commercial inventories in the week before last, in return for any noticeable increase in the demand for oil. Indeed, the US economy is still slowing, as the US government revised GDP growth from 2.4% in the second quarter to 2.1% last week, payroll growth in the private sector slowed significantly in August while the unemployment rate rose from 3.5% to 2.1%. 3.8% last Friday, according to US labor statistics. If the labor market and economic growth continue to slow at the current gradual pace, the Federal Reserve will likely end the interest rate hike, which will lower the value of the dollar and raise demand and oil prices. The slowdown in the largest oil-consuming economies and the possibility of the Federal Reserve continuing to raise interest rates will limit the rise in oil prices, regardless of the decline in US inventories. The oil market equation is still driven by the supply side much more than the demand side, supported by OPEC + production cuts and the extension of Saudi Arabia’s voluntary cut. Therefore, extending the voluntary cut to the end of the year will remain the main driver for the recovery of oil markets until demand returns and the equation balances.
according to “Riyadh“
2023-09-05 17:34:00
#High #oil #prices. #calls #caution
