Brent crude oil crossed $95/bbl for the first time since November 2022 – having soared nearly 2 percent in early trading hours yesterday. In three months, Brent crude has gained close to 35 percent – a rally that is unmatched for the best part of ten years – barring the Russia-Ukraine induced price spiral. The resistance offered at and around $90/bbl is broken – and as feared, the next resistance stop is not before $110/bbl.
More voices have now joined the chorus of Brent racing towards $120/bbl. The likes of JP Morgan have revised demand and price estimate for first half of 2024. Not much has changed from a week ago in terms of fundamentals. The market supply continues to be tight and demand remains firm. The fresh wave of uncertainty has been fueled by the US shale players, raising concerns that Brent could race to as much as $150/bbl, if new exploration programs are not undertaken.
Granted, there is a sense of panic and an in-built exaggeration in what the shale players have put forward – the market still incorporates that with a discount. China’s demand for oil has defied all negative sentiments, fueled especially by the Western media, casting doubts over the sustainability of demand. China is expected to register strong quarterly growth numbers – whereas other regional powerhouses have also carried the momentum from previous quarter.
Saudi Arabia remains the key to the price rally. The resilience from Saudi Arabia (and Russia) in the past year or so is unprecedented – defying all odds. Market observers are now in consensus that Saudi Arabia will do whatever it takes to keep the market balanced, whenever there is a sizeable drop in price. The same has been demonstrated with utmost clarity in the past year – and no amount of demand slide will stop Opec Plus to continue tighten the market.
The US crude oil and petroleum products inventories have continued to slide – and the rig count is slow to get off the blocks. Russia’s decision to amplify ban on refined product exports has also added premium to various fuel grades. Oil at these levels spells more trouble for Pakistan, as full pass through to end consumer is in place. The recent appreciation of PKR against the greenback will undoubtedly help mitigate some of the impact for the ongoing fortnight, but the party could be short-lived if Brent shoots above $100/bbl.