Crude oil prices edge higher as tight supply back in focus

Tight supply back in focus, crude oil prices edge higher in Monday trading

Brent crude oil futures advanced to $94 per barrel on Monday, as the market turned its attention to a tighter supply outlook, triggered by Russia’s temporary ban on fuel exports, while simultaneously remaining cautious about potential further interest rate hikes that might dampen demand.

The price of U.S. benchmark WTI crude oil recorded gains for the second consecutive session, rising above $90.5 before retreating further into the day.

Both oil contracts declined over the previous week, primarily influenced by the U.S. Federal Reserve’s so-called “hawkish skip” which indicated that the central bank still had one rate hike on the table, despite keeping the federal funds rate unchanged within the 5.25% to 5.5% range.

Oil has added close to 25% since the end of June, heading for the biggest quarterly gain since March 2022, spurred by Saudi Arabia and Russia extending their production cuts until the end of the year and brighter economic outlooks in the U.S. and China. The recent surge has revived discussions about the potential of crude oil reaching $100 per barrel, which could exert growing price pressure on importers.

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Oil price news: Moscow bans gasoline and diesel exports, U.S. rig count drops, upbeat China data

Last week, Moscow implemented a temporary ban on gasoline and diesel exports to most countries to stabilize its domestic market, sparking worries of insufficient supply, particularly for heating oil as the Northern Hemisphere approaches winter. Australia-based bank ANZ called the move a “bullish development,” but Dutch bank ING said it did not believe the ban would be in place for long, “given the domestic storage constraints that will be soon faced by not allowing roughly 1MMbbls/d of diesel exports.”

Despite higher prices, the United States witnessed a decline in the number of operational oil rigs, dropping by eight to 507 in the previous week, marking their lowest count since February 2022, according to a weekly report from Baker Hughes released on Friday. “The fall in rig count this year is what has given OPEC+ the confidence to cut output without having to worry too much about losing market share to non-OPEC producers,” ING noted.

Optimism arose due to expectations of improved economic data from China, the world's largest crude importer. However, analysts cautioned that oil prices may encounter technical resistance at the highs achieved in November 2022, which were revisited last week.

Goldman Sachs analysts predicted that China's manufacturing sector would likely return to expansion in September, with the Purchasing Manufacturing Index expected to surpass the 50-point threshold for the first time since March.

Additionally, they reported a positive sign that China's oil demand increased by 0.3 million barrels per day (bpd) to reach 16.3 million bpd the previous week. This rise was attributed, in part, to a gradual recovery in jet fuel demand related to international flights.

Brent price forecast: Saudi cuts to keep oil high until year-end, analysts say

A Standard Chartered report cited by industry website Rigzone indicated that oil price pressures may persist going into 2024, due to the FOMC’s message last week:

Bloomberg Economics has previously suggested that Saudi Arabia may require oil prices to approach nearly $100 a barrel to finance Crown Prince Mohammed bin Salman's spending initiatives as part of Vision 2030 — an ambitious plan to overhaul the kingdom’s economy, which includes massive infrastructure projects such as the construction of a $500 billion city called Neon.

On Friday, HSBC updated its forecast for Brent oil prices in 2023 and 2024, predicting that the market would remain tight over the next several months on Saudi output cuts.

As of September 25, HSBC’s Brent crude oil price forecast stood at an average of $84 per barrel in 2023 and $82.50 for 2024 (up by $7.5 per barrel).

Morgan Stanley also revised its predictions for Brent oil prices last week as it anticipated a supply shortage over multiple quarters, but added that prices above $100 per barrel would seem “stretched.”

The bank has increased its Brent forecast for Q2 2023 to $95 per barrel, up from the previous estimate of $82.5 per barrel. It also raised its projections for subsequent quarters: $92.5 per barrel for Q1 2024 (an increase of $12.5), $90 for Q2 2024 (an increase of $10), $87.5 for Q3 2024 (an increase of $7.5), and $85 for Q4 2024 (an increase of $5).

“With these cuts, fundamentals are clearly tighter-for-longer and prices are well supported,” Morgan Stanley wrote in a note last Wednesday, adding prices were well supported around current levels if the market continued to remain in deficit.

Goldman Sachs said on Wednesday that producer group OPEC has the potential to maintain Brent crude oil prices within a range of $80 to $105 per barrel in 2024, based on the anticipation of increased oil demand and extended supply cuts. The bank revised its year-ahead Brent price forecast to $100 a barrel from $93 earlier.

Goldman has joined a number of firms that have revised their forecasts with the view that triple-digit oil prices may now be on the cards for the final quarter of 2023. Bank of America, Citigroup and Goldman Sachs are now all predicting $100 US Brent crude prices before 2024, as is Chevron CEO Mike Wirth, according to a Bloomberg report.

WTI price forecast: Analysts eye WTI above $85 mark for 2024

In its most recent short-term energy outlook (STEO) released on September 12, the U.S. Energy Information Administration (EIA) raised its forecasts for the average prices of Brent and WTI crude oil for both 2023 and 2024.

According to the latest STEO, the EIA anticipates that the average Brent spot price will be $84.46 per barrel this year and $88.22 per barrel next year. Additionally, it projects that WTI spot prices will average $79.65 per barrel in 2023 and $83.22 per barrel in 2024.

In a research note cited by Canadian media outlet CBC, Eight Capital analyst Phil Skolnick said for the full year 2024, he continued to forecast an average WTI price of $86 per barrel and an average Brent price of $90.

He is bullish about oil prices in the upcoming autumn, highlighting that OPEC's projection for global demand in 2023 stands at a record 103 to 104 million barrels per day.

"If OPEC's prediction turns out to be correct, the Q4/23 supply deficit may be the biggest in more than a decade," Skolnick wrote.

In its WTI price forecast as of September 19, economic data aggregator TradingEconomics noted that the commodity was expected to trade at $92.83/bbl by the end of this quarter, according to the platform’s global macro models and analysts' expectations. TradingEconomics’ 12-month forecast for WTI crude had the commodity trading at a potential price of $100.70/bbl by late September 2024.

When considering commodities, crude oil spots and futures for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.