Oil bulls are back in business as Saudi led Opec Plus decisions are finally making an impact – leading to fourth straight week of rise in Brent crude. Brent was last seen trading around $85/bbl – highest in six months. Last week close also stretched the weekly gains to five consecutive weeks, and the early signs from this week opening suggests the bull run has enough gas to stretch.
The Opec Plus coordinated efforts are finally bearing the desired results, which gained more gained traction after Saudi Arabia’s voluntarily cut in July. Most analysts now expect the Kingdom to extend the production cut beyond the earlier announced August cut-off. The likes of JP Morgan and UBS, who have been bearish for the best part of last 18 months – have reversed their calls, calling for Brent oil to cross $90/bbl by the end of this year and to average over $85/bbl for remaining 2023.
The big guns like Morgan Stanley were the first to call the bull run citing big inventory drawdowns in the pipeline. It seems the worst fears are coming true as US crude inventory shed over 5 million barrels in July – the steepest fall in more than a year, according to the U.S. Energy Information Administration. The US crude stocks are well below the five-year average – which is generally considered an indication of Brent entering an extended bullish zone.
Demand is believed to outstrip supply not just in 2023 but for most part of H12024 as well. The doubts on China’s muscle and appetite are fast fading, fueled further by Chinese administration’s resolve to throw a rather big stimulus to sustain the strong demand growth post China’s reversal of Covid policy. As per Goldman Sachs the market seems to have abandoned the growth pessimism – and that largely owes to China’s rather strong comeback, which has shown signs of sustaining for the entire fiscal year.
Opec’s next meet up may not be that much of an event, given how the prices have rallied, leaving enough imbalance in the market for Opec members to not consider any fresh cuts for the year. Saudi Arabia though, has acted unilaterally on previous occasions, and has made cuts that no one saw coming. The Saudi surprise factor is a new permanent every time Opec Plus meets. It is all heating up again. The likes of Pakistan can only sit at the fence and hope that the bull run does not extend deep because that spells more trouble for an economy that continues to be on the fringes.
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