Oil prices reached their highest level in over a year, driven by a sharp drop in crude stocks at a key storage hub in Cushing, Oklahoma. Inventories fell to their lowest level since July last year, with a drop of 943,000 barrels compared to the prior week. The surge in prices resulted in U.S. West Texas Intermediate futures touching $95.03 per barrel, the highest level since August last year. Global benchmark Brent also rose to $97.56 a barrel. Experts forecast that oil prices will continue to remain high for the rest of the year, with potential upside risks if OPEC+ maintains tight supplies.
The decline in crude stocks at Cushing raises concerns about the ability to meet market demand if inventories dip further. According to Bart Melek, the managing director of TD Securities, if inventories continue to decline, it will become challenging to get crude oil out into the market. He predicts that oil prices will likely remain at high levels for an extended period, but he questions the durability of this rally, suggesting that the end may be in sight. Russia has also decided to extend its export reduction until the end of December, and refinery maintenance season approaching will further decrease refinery throughputs.
While some predict oil prices to reach $100 per barrel, others remain cautious. It is not in OPEC’s interest for prices to surge to triple digits as it could lead to long-term demand destruction. Bart Melek suggests that as the year comes to a close, OPEC may signal that they are done with implementing strong measures to limit supply. However, forecasts from Goldman Sachs indicate that Brent prices could sustain a range between $80 and $105 in 2024, driven by strong demand growth from the Asia region. Overall, the global oil market is expected to experience a robust deficit on top of an existing significant shortfall due to ongoing production cuts by OPEC and its allies.