Oil - at the highest level in the last year; What's next?

Oil prices rose to their highest level in a year as a sharp drawdown in US crude inventories added to fears of low global supply caused by cuts by the Organization of the Petroleum Exporting Countries plus its allies (OPEC+ ), with Saudi Arabia in the foreground, according to Reuters.

The range of West Texas Intermediate (WTI), relevant to the American market, traded yesterday, at 14:00, at 93.6 dollars per barrel, after a maximum of 95.52 dollars, a level not seen since the end of August last year, while global benchmark Brent traded at around $94.9 a barrel, the highest level since mid-November last year, according to Investing.com data.

"The oil market is quickly accepting that the OPEC+ cuts announced this summer are having a profound effect on crude oil availability," said Stefano Grasso, senior portfolio manager at 8VantEdge in Singapore, according to Reuters. "Inventories are running out, while demand continues to grow. We are still far from a price level that causes demand destruction".

U.S. crude inventories fell 2.2 million barrels last week to 416.3 million barrels, according to government data, well above the 320,000-barrel drop expected by analysts, according to a Reuters poll. Inventories at the Cushing, Oklahoma warehouse, a key delivery hub for U.S. crude futures, fell by 943,000 barrels this week to just under 22 million barrels, the lowest level since July 2022 and close to the operational minimum, according to the data of the Energy Information Administration.

The decline comes amid an increase in refined quantities and export demand, Reuters writes. Recently, Saudi Arabia and Russia, which are part of OPEC+, cut production by 1.3 million barrels per day until the end of the year, with the next meeting of the group being on October 4, the mentioned publication also notes.

• Bart Melek: "We think prices can stay near these levels for a while, but not too long"

Bart Melek, managing director at TD Securities, predicts oil prices will remain "elevated" for the rest of the year, with a risk of upside if OPEC+ continues to keep supply tight. He also pointed out that refinery output will decline in the coming months as the maintenance season approaches.

"We think prices can stay near these levels for some time. But we don't think it will be for too long. And we may have seen the end of this rally," said the director of TD Securities, quoted by CNBC. "It's not in OPEC's interest to see prices go up a lot, into triple digits, because they'll be worried about destroying long-term demand. We believe that as we approach the end of the year, they will signal that they are ending these supply-limiting measures."

• Goldman Sachs: "Most of the rally is behind us"

Estimates of Brent oil prices above $100 per barrel have appeared frequently in the international press in recent days amid rising demand, tight supply and low levels of warehouse fill.

Goldman Sachs recently raised its forecast for Brent crude from $93 a barrel to $100 over the next twelve months, according to Reuters.

But a prolonged period of oil prices above $100 may heighten the inflation concerns of governments and monetary authorities, who have aggressively raised interest rates precisely to dampen the general rise in prices. Moreover, high interest rates have already led to reduced demand in Western economies, including for oil. On the other hand, increased production by non-OPEC+ countries may dampen any upward trend in crude oil prices. Goldman expects non-OPEC+ supply to rise by 1.1 million bpd by next year, while the International Energy Agency (IEA) forecast an increase of 1.3 million bpd, according to Reuters.

The resumption of investment and rising offshore production also make a long-term appreciation less likely, Goldman analysts said, adding that "most of the rally is behind us," according to Reuters.

On the other hand, Saudi Arabia, the de facto leader of OPEC, is constantly faced with the problem of striking a balance in oil prices that are high enough to reward producers, but not so high that destroy demand and send the economy into recession. "I'm not sure there's much economic sense in taking the global economy into recession if OPEC+ continues with these cuts, which makes me wonder how high the price will go and how sustainable it will be" , said Craig Erlam, analyst at OANDA.

• Christyan Malek: "Put on your seat belts; it will be a very volatile supercycle"

Christyan Malek, head of Europe, Middle East and Africa (EMEA) energy equities research at JPMorgan, predicted last week that Brent crude could continue its recent rally to $150 by 2026. Among the elements Malek bases his estimate on are capacity shocks, an energy supercycle and, of course, efforts to divest from fossil fuels. "Put on your seat belts. It's going to be a very volatile supercycle," Malek told Bloomberg on Friday, citing OPEC's production cuts and lack of investment in new production.

In February this year, JPMorgan said oil prices were unlikely to reach $100 a barrel this year, unless there was a major geopolitical event that shook the markets. The investment bank warned that OPEC+ could add as much as 400,000 barrels a day to global output, and Russia's oil exports could recover by mid-year. At the time, JPMorgan was forecasting demand growth of 770,000 barrels per day from China, less than the IEA and OPEC estimates.

It now sees a global supply-demand imbalance at 1.1 million bpd in 2025, but rising to a deficit of 7.1 million bpd in 2030 as robust demand faces tight supply.