Oil on track for an upward cycle amid monetary tightening and global production cuts

31 July 2023 211
Oil on track for an upward cycle amid monetary tightening and global production cuts

Oil posted its biggest monthly gain this year amid signs of a tightening market.


Benchmark U.S. crude rose nearly 14%, marking the biggest increase since January 2022. That's the biggest July figure in nearly two decades.


Meanwhile, various estimates suggest crude demand will hit a record high amid OPEC+ production cuts.


Goldman Sachs Group Inc. noted that record high demand and Saudi Arabia's supply cuts have brought back deficits. The bank estimated that global oil demand rose to a record 102.8 million bpd in July and it revised up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the United States, offsetting a downgrade for China’s consumption. “Oil prices are up 18% since mid-June as record high demand and Saudi supply cuts have brought back deficits, and as the market has abandoned its growth pessimism,” Goldman Sachs analysts said in a July 30 note.


The bank maintained its Brent forecast at $86 a barrel for December and expects prices to rise to $93 in the second quarter of 2024.


Exxon Mobil’s CEO Darren Woods said the company expects record oil demand this year and next year, and that this may help boost energy prices in the second half of the year.


In addition, energy firms in July cut the number of oil rigs for an eighth straight month, Baker Hughes said in its weekly report on Friday.


Oil’s string of advances mean futures in New York have erased their year-to-date losses, with expectations that the Federal Reserve is close to ending its cycle of monetary tightening also aiding sentiment as the dollar weakens.


OPEC+ supply cuts are being driven by lower production from Saudi Arabia and Russia, improving the outlook for crude oil prices. Russian Deputy Prime Minister Alexander Novak said Russia will cut crude exports by 500,000 barrels a day in August, while Saudi Arabia will also extend its supply curbs next month.


Speculators increased bullish bets in the whole energy industry. Net long positions in WTI and global benchmark Brent combined rose to the highest level in three months.


Overall recommendation:


Buy BRENT with the first target of 86 dollars per barrel and the second target of 89 dollars. Hold a position until the middle of 2024. A stop-loss could be placed at the level of 80 dollars per barrel.


This content is for informational purposes only and is not intended to be investing advice.

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