Crude oil prices surge to highest levels in over a year

Brent, WTI prices touch highest levels in over a year as U.S. inventories fall, tight global supply persists

On Thursday, Brent crude oil futures were trading just above the $96 per barrel mark, having earlier reached as high as $97.8 per barrel during the session. This marked the highest level in nearly a year, primarily due to concerns about a global supply shortage being intensified by a significant decrease in U.S. crude stockpiles.

Futures for U.S. oil benchmark WTI crude traded above $93 per barrel, after rising as high as $95.

Official data revealed that U.S. crude inventories had declined by 2.2 million barrels the previous week,— a far more substantial drop than the market's anticipation of a 320,000-barrel decrease. Furthermore, crude stocks at the critical storage hub in Cushing, Oklahoma, reached their lowest point since July 2022.

“Today’s price action seems to be Cushing driven, as it reaches a 22 million bbl low, the lowest level since July 2022,” Bart Melek, managing director of TD Securities, told CNBC on Thursday. If the inventories continue to dip below those levels, it’s going to be “rough” getting crude out into the market, Melek added. He believes that current oil prices may maintain around current levels for the foreseeable future, although a decline may be in sight:

The market was already contending with tightening global supplies as major OPEC+ players, including Saudi Arabia and Russia, extended supply cuts through the end of the year. The Russian government also indicated on Wednesday that it is contemplating restrictions on “grey” fuel exports and an increase in fuel export duties for resellers.

“OPEC+ production cuts, including the voluntary extra cut by Saudi Arabia, are bearing fruit, lowering oil inventories and supporting prices,” UBS wrote in a note dated September 28.

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Brent price forecast: Analysts see short-term upside, disagree on long-term prices

Bloomberg Economics previously suggested that Saudi Arabia may be targeting oil prices to approach nearly $100 a barrel to finance Crown Prince Mohammed bin Salman's spending initiatives as part of Vision 2030 — an ambitious plan to overhaul the kingdom’s economy, which includes massive infrastructure projects such as the construction of a $500 billion city called Neon.

While recent price dynamics are in line with that expectation, analysts’ forecasts are nonetheless varied with regards to where the oil market will go.

In a report sent to industry website Rigzone on Wednesday, analysts at BofA Global Research said they had updated their forecasts and now project the Brent crude oil price to average $96 in the final quarter of this year.

The BofA Global Research analysts added that they are keeping their $90 per barrel forecast for 2024 “as non-OPEC oil supply expands by 1.2 million barrels per day, driven by Guyana, Canada, U.S. shale, and Brazil”.

“Also, if Venezuela and Iran sanctions were to ease further, that could add 450,000 barrels per day to supply in 2024,” they added.

In a separate report shared with Rigzone on September 19th, analysts from Standard Chartered forecasted that ICE Brent could average $98 per barrel in 2024, followed by an increase to $109 per barrel in 2025.

An earlier report submitted to Rigzone earlier this month indicated that BMI, a Fitch Solutions company, anticipated the Brent oil price to maintain an average of $83 per barrel for both 2024 and 2025. A Bloomberg Consensus, included in the same report, projected an average Brent price of $83 per barrel in 2024 and $81 per barrel in 2025.

According to a forecast from the investment bank UBS, Brent may trade between the range of $90 to $100 per barrel over the coming months, with a year-end target of $95 per barrel.

Goldman Sachs recently revised its one-year Brent price projection from $93 per barrel to $100 citing “modestly sharper inventory draws,” the investment bank wrote in a recent note dated September 20.

“Overall, we believe that OPEC will be able to sustain Brent in an $80 to $105 range in 2024,” the Goldman report added, citing strong demand growth from Asia.

In its September 28 Brent price forecast, economic data aggregator TradingEconomics noted that the commodity was expected to trade at $95.74/bbl by the end of this quarter, according to the platform’s global macro models and analysts' expectations.

TradingEconomics’ 12-month forecast for Brent crude oil had the commodity trading at a potential price of $103.91/bbl by late September 2024.

WTI price forecast:

On Wednesday, the price of West Texas Intermediate (WTI) crude oil hovered above $93 per barrel, driven by the fact that inventories in Cushing, Oklahoma, dipped slightly below 22 million barrels, nearing their operational minimums. The premium for WTI crude for near-term delivery is currently exceeding $2, which represents the highest level since July 2022. This situation in the futures market reflects the physical tightness in the supply.

However, it's important to note that inventories have been decreasing in most areas. In the Cushing hub specifically, storage tanks are currently operating at only 25% of their capacity.

In its most recent short-term energy outlook (STEO) released on September 12, the U.S. Energy Information Administration (EIA) raised its forecasts for the average prices of Brent and WTI crude oil for both 2023 and 2024.

According to the latest STEO, the EIA anticipates that the average Brent spot price will be $84.46 per barrel this year and $88.22 per barrel next year. Additionally, it projects that WTI spot prices will average $79.65 per barrel in 2023 and $83.22 per barrel in 2024.

In its WTI price forecast as of September 28, TradingEconomics noted that the commodity was expected to trade at $92.83/bbl by the end of this quarter, according to the platform’s global macro models and analysts' expectations.

TradingEconomics’ 12-month forecast for WTI crude had the commodity trading at a potential price of $100.70/bbl by late September 2024.

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