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Oil prices are heading to a record again, and it’s increasingly clear the gains are no fluke.
Mario Tama/Getty Images
Oil prices recorded a seven-week winning streak, and it’s increasingly clear the gains are no fluke. Oil demand hit a record in June and is on track to stay at high levels for the rest of the year, according to the International Energy Agency, which released its monthly report on Friday.
In fact, average oil demand is likely to hit 102.2 million barrels per day for 2023, a record, with China accounting for more than 70% of the growth “despite persistent concerns over the health of the economy,” the IEA predicts. The report says that strong summer air travel has been a big reason behind the surge in fuel demand, too.
Brent crude
,
the international benchmark, gained 57 cents per barrel, or 0.7% to $86.81 this week, another weekly gain, the longest such streak since early 2022.
West Texas Intermediate
,
the U.S. benchmark, gained 37 cents per barrel, or 0.5%, to $83.19.
The price gains have helped energy stocks recover from a Spring slump, but they’ve still had a mediocre year. The
Energy Select Sector SPDR
exchange-traded fund (XLE) is up 6.5% in 2023, trailing the
S&P 500
by about 10 percentage points.
Oil demand rose to 103 million barrels a day in June, outpacing supply of 101.8 million barrels, the IEA reported. Supply fell by another 910,000 barrels per day in July. Earlier in the year, supply was outpacing demand, forcing oil producers and refiners to store their products instead of selling them on the open market. That caused prices to slump.
Since then, the global economy has begun to rebound strongly and oil supply has fallen. Saudi Arabia has unilaterally cut supply by one million barrels per day and Russia has said it is decreasing supply, although there are varying accounts of just how many barrels Russia has cut. Saudi Arabia is set to keep production low through at least September. Inventories of oil and oil products are starting to fall, and in developed countries are now below historical averages.
The Biden administration is clearly concerned about the rise in prices, which have caused gasoline prices to increase too. They’re up 30 cents per gallon in the past month to $3.84. RBC Capital Markets analyst Helima Croft thinks pressure from Washington may have convinced Ukraine to allow civilian vessels to travel from its Black Sea ports, creating new possible shipping routes and potentially increasing global oil supplies.
In addition, the U.S. and Iran made an informal deal that resulted in the release of five American prisoners and the unfreezing of $6 billion in Iranian revenue, Croft noted. The thawing of tensions with Iran could result in more growth in Iranian oil exports, which have already helped decrease the global supply shortage.
“With the summer surge in energy prices, the White House is upping the intensity of its energy diplomacy effort to keep the oil market well-supplied,” Croft wrote.
Write to Avi Salzman at [email protected]
Source: https://www.barrons.com/articles/brent-wti-crude-oil-prices-winning-streak-655c4543?siteid=yhoof2&yptr=yahoo