Wrapping up the trading week with an unexpected twist, oil traders sent prices skyrocketing nearly 3% to their highest in over two months, fueled by a creeping tension over an increasingly tight global supply. The oil market was left buzzing when Brent reached an impressive $78.47 per barrel, a high unmatched since May 1, marking a 2.6 percent increase. Similarly, the West Texas Intermediate index rounded off the week at $73.86, its peak since May 24, indicating a 2.9 percent rise in prices.
An Eye on the Market: Are Supply Cuts to Blame?
Regarding the sharp increase, experts from Morningstar attributed such escalating prices to the expected production reductions by OPEC+ aimed at compressing the market. The experts revealed projections of arising supply deficits in the latter half of 2023, which, in turn, would drive oil prices even higher. The stipulated production cuts by OPEC+ and its allies are projected to reach a staggering 5 million barrels per day, equating to 5% of global demand.
Traders on Alert: Telltale Signs in the Horizon
Further indications of tightening supply were observed in data from Vortexa, revealing a dramatic reduction in crude reserves from Saudi Arabia in floating storage off the Egyptian Red Sea port of Ain Sukhna. More explicitly, the supply fell by almost half from June to 10.5 million barrels. Pertinent to Vortexa’s revelation, John Kemp, a commodities analyst for Reuters, noted that the diminishing prices and drilling rates since late 2022 are projected to shrink output in the second half of 2023, pressuring oil and gas markets.
Market Reactions: What Drives Traders’ Optimism?
Phil Flynn, a senior market analyst at Price Futures Groups Inc., expressed optimism on Friday’s trading, stating, “We’re knocking on the door of a major breakout to the upside.” He insinuated that a number of traders’ short covering capped off the remarkable week. Despite enjoying a bullish run, traders remain wary with interest rate hikes by central banks luring around the corner. The U.S. Federal Reserve might be triggered to action following data revealing slowed job gains but robust wage growth.
Rounding up: Uncertainty Looms over the Industry
Adding to the mystery of oil prices, Baker Hughes published data revealing an increase in the total amount of active drilling rigs in the U.S., which rose by six this week after a decline of eight last week. The gas rig count rose, though the oil rig count declined. Despite the unforeseen surge, crude oil prices are almost 10 percent lower this year due to disappointments in China’s post-lockdown recovery, increased rates, and strong Russian exports despite sanctions.
Trading trends in this volatile market continue to confound experts worldwide. With the supply tightening in both the oil and gas markets, what follows remains a closely watched endeavor.
