Oil Prices Surge to Highest Level in Over a Year
Oil prices reached their highest level in more than a year during Asian trading hours. This increase was driven by a significant drop in crude stocks at a key storage hub in Cushing, Oklahoma. According to data from the U.S. Energy Information Administration (EIA), crude inventories fell to 22 million barrels in the fourth week of September, close to the operational minimum. This represents a decrease of 943,000 barrels compared to the previous week.
As a result, U.S. West Texas Intermediate futures hit $95.03 per barrel, the highest since August 2022. The global benchmark Brent also rose by 1.05% to reach $97.56 per barrel.
Bart Melek, managing director of TD Securities, explained that this price surge is primarily driven by the low inventories in Cushing, stating, “Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022.”
There are concerns that if inventories continue to decline, it will become challenging to supply crude oil to the market. Melek predicts that oil prices will remain high for the remainder of the year, with the potential for further increases if OPEC+ continues to restrict supplies.
Anticipating a ‘Robust Deficit’
Malek highlights that the global oil markets are facing a significant deficit, in addition to an existing shortfall this quarter, due to production cuts implemented by OPEC and its allies. Saudi Arabia, the leading member of OPEC+, has extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year.
“We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”
Bart Melek
Managing Director, TD Securities
Russia has also pledged to extend its export reduction of 300,000 barrels per day until the end of December. Furthermore, refinery throughputs are expected to decline in the coming months due to refinery maintenance season. Refinery crude throughput refers to the volume of crude oil a refinery can produce within a specific period.
Melek expresses that it would not be in OPEC’s interest to see prices rise to triple digits, as it could lead to long-term demand destruction. He predicts that OPEC may signal a decrease in supply restrictions as we approach the end of the year.
There have been forecasts of $100 per barrel oil in the near future. Goldman Sachs recently revised their 12-month Brent forecast from $93 per barrel to $100, based on inventory draws. The investment bank also expects OPEC to maintain Brent prices within a range of $80 to $105 in 2024 due to strong demand growth in the Asia region.
Oil Prices Surge to Highest Level in Over a Year
Oil prices reached their highest level in more than a year during Asian trading hours. This increase was driven by a significant drop in crude stocks at a key storage hub in Cushing, Oklahoma. According to data from the U.S. Energy Information Administration (EIA), crude inventories fell to 22 million barrels in the fourth week of September, close to the operational minimum. This represents a decrease of 943,000 barrels compared to the previous week.
As a result, U.S. West Texas Intermediate futures hit $95.03 per barrel, the highest since August 2022. The global benchmark Brent also rose by 1.05% to reach $97.56 per barrel.
Bart Melek, managing director of TD Securities, explained that this price surge is primarily driven by the low inventories in Cushing, stating, “Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022.”
There are concerns that if inventories continue to decline, it will become challenging to supply crude oil to the market. Melek predicts that oil prices will remain high for the remainder of the year, with the potential for further increases if OPEC+ continues to restrict supplies.
Anticipating a ‘Robust Deficit’
Malek highlights that the global oil markets are facing a significant deficit, in addition to an existing shortfall this quarter, due to production cuts implemented by OPEC and its allies. Saudi Arabia, the leading member of OPEC+, has extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year.
“We do think that prices could keep up near these levels for quite some time. But I don’t think it’s too permanent. And we might have seen the end of this rally.”
Bart Melek
Managing Director, TD Securities
Russia has also pledged to extend its export reduction of 300,000 barrels per day until the end of December. Furthermore, refinery throughputs are expected to decline in the coming months due to refinery maintenance season. Refinery crude throughput refers to the volume of crude oil a refinery can produce within a specific period.
Melek expresses that it would not be in OPEC’s interest to see prices rise to triple digits, as it could lead to long-term demand destruction. He predicts that OPEC may signal a decrease in supply restrictions as we approach the end of the year.
There have been forecasts of $100 per barrel oil in the near future. Goldman Sachs recently revised their 12-month Brent forecast from $93 per barrel to $100, based on inventory draws. The investment bank also expects OPEC to maintain Brent prices within a range of $80 to $105 in 2024 due to strong demand growth in the Asia region.