Oil prices reached their highest level in over a year as crude stocks in Cushing, Oklahoma, fell to their lowest level since July 2022. According to data from the U.S. Energy Information Administration (EIA), inventories dropped by 943,000 barrels compared to the previous week, reaching 22 million barrels in the fourth week of September. This decrease in stocks could make it difficult to supply crude to the market if inventory levels continue to decline. Bart Melek, Managing Director of TD Securities, predicts that oil prices will remain high for the rest of the year, with a possibility of further increases if OPEC+ continues to limit supplies.
The global oil markets are facing a potential deficit on top of an existing shortfall during this quarter, mainly due to OPEC and its allies implementing production cuts. Saudi Arabia extended its voluntary crude oil production cut of 1 million barrels per day until the end of the year, bringing their output close to 9 million barrels per day. Russia has also pledged to extend its 300,000 barrels per day export reduction until the end of December. Additionally, refinery maintenance season is approaching, which will lead to declines in refinery crude throughput. Despite the current price rally, Melek believes that prices may not remain at these levels for an extended period, and OPEC may signal they are done with supply-limiting measures as the year progresses.
While forecasts for $100 per barrel oil have been circulating recently, Goldman Sachs raised its 12-month Brent forecast from $93 to $100. The investment bank cited “modestly sharper inventory draws” as the reason behind the upward revision. They expect OPEC to sustain Brent prices in a range of $80 to $105 in 2024, driven by strong demand growth in the Asian region. However, Melek believes that OPEC will be cautious about allowing prices to reach triple digits, as they fear long-term demand destruction.