Oil Prices Surge to Highest Level in Over a Year
Crude Stocks at Key Storage Hub Reach Lowest Level Since July Last Year
Oil prices reached their highest level in over a year during Asian trading hours following a significant decrease in crude stocks at a key storage hub. According to the U.S. Energy Information Administration (EIA), crude inventories in Cushing, Oklahoma fell to 22 million barrels in the fourth week of September, close to the operational minimum. This marks a decrease of 943,000 barrels compared to the previous week.
As a result, U.S. West Texas Intermediate futures rose to $95.03 per barrel, the highest since August 2022, with global benchmark Brent increasing by 1.05% to $97.56 a barrel.
Bart Melek, managing director of TD Securities, attributed the price action to the low levels of crude stocks in Cushing, stating that it is the lowest level since July 2022.
Potential Challenges if Inventories Continue to Decrease
Bart Melek expressed concerns about the difficulties of getting crude oil into the market if inventories continue to dip below current levels. He anticipates that oil prices will remain high for the rest of the year, with the possibility of further increases if OPEC+ maintains tight supply levels.
‘Robust Deficit’ Expected in Global Oil Markets
Malek highlighted the possibility of a significant deficit in the global oil markets, in addition to the existing shortfall, due to OPEC and its allies’ production cuts. Saudi Arabia, for instance, extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year.
Extended Export Reductions and Refinery Maintenance Impact
Russia has committed to extending its export reduction of 300,000 barrels per day until the end of December. Malek also noted that refinery throughputs are expected to decline as refinery maintenance season approaches. Refinery crude throughput refers to the volume of crude oil a refinery can produce in a given period of time.
Despite the current price surge, Malek pointed out that it would not be in OPEC’s interest for prices to reach triple digits, as they would be concerned about long-term demand destruction. He projected that OPEC may signal the end of strong supply-limiting measures as the year comes to a close.
Forecasts for $100 Per Barrel Oil
Recent forecasts have suggested the possibility of oil prices reaching $100 per barrel. Goldman Sachs, for example, raised its 12-month Brent forecast from $93 per barrel to $100, citing modestly sharper inventory draws. The investment bank also mentioned strong demand growth from the Asia region and believes that OPEC will be able to sustain Brent in a range of $80 to $105 in 2024.