U.S. benchmark crude oil prices have touched $95 per barrel for the first time in over a year. This comes on the heels of a significant inventory drop in Cushing, the primary delivery point for U.S. oil, highlighting the widening global supply gap.
On Wednesday, WTI crude futures surged by 3.6%, marking the largest increase since early May. Last week's EIA crude inventory decline exceeded expectations, with Cushing's crude inventory continuing its sharp decline, reaching its lowest since July 2022.
Since the end of June, WTI crude prices have risen by over 30%, potentially setting the stage for the largest quarterly gain since the beginning of 2022. This surge is intensifying U.S. inflation concerns and presenting new challenges for the Federal Reserve.
Analysts suggest that the overall decline in U.S. crude inventory, which exceeded expectations, indicates a rapidly tightening market due to production cuts by Saudi Arabia and Russia.
Earlier this month, OPEC projected a daily crude supply gap of up to 3 million barrels in the fourth quarter.
With resilient oil demand evident in both the U.S. and China, many market insiders now believe that a rise to $100 per barrel is inevitable, despite a rebounding dollar and ongoing concerns about global high interest rates.
Brent crude futures closed at $96.55 per barrel on Wednesday, the highest closing price since November of the previous year.
Warren Patterson, Head of Commodities Strategy at ING, indicated that it's only a matter of time before Brent crude prices break the $100 per barrel mark. However, he believes that any breakthrough will be relatively short-lived, given the increasing pressure on OPEC+ to ease production cuts.
Analysis: Saudi Arabia Nearing Decision on Increasing Supply Last week, Saudi Energy Minister Prince Abdulaziz bin Salman seemed to hint that despite Brent crude prices exceeding $90 per barrel, Saudi Arabia isn't ready to ramp up production. While he denied that Saudi Arabia is "pushing up prices," he expressed a desire to release more oil to the market only after achieving "data and transparency." The kingdom is wary of introducing new supply that might depress oil prices, especially when concerns about an economic downturn persist.
Rising oil prices could stimulate other countries to increase oil production or curb demand, leading to a drop in prices, a scenario Saudi Arabia is keen to avoid.
Analysts at Citigroup recently wrote that the recent price surge might lead to further price declines next year. However, the recent robust global demand for oil has been outpacing supply.
According to data from the International Energy Agency (IEA), China, the world's largest oil importer, is expected to see its demand grow by 1.6 million barrels per day this year, accounting for about three-quarters of the total global increase.
Bob McNally, founder and president of energy group Rapidan, estimates that global daily oil demand will exceed production by 1.8 million barrels in the fourth quarter of this year, nearly 2% of the market.
Saudi Arabia has indicated that the latest round of production cuts will continue until the end of the year. Russia has also committed to reducing its daily oil exports by 300,000 barrels, further fueling the price surge.
However, Saudi Arabia might not be entirely pleased with this scenario. Their oil production is significantly below capacity, sacrificing some market share. Ironically, the state oil company, Saudi Aramco, is spending billions to increase its oil output.
McNally, who once served as an energy advisor to U.S. President George W. Bush, believes Saudi Arabia is nearing the point where it will seriously consider increasing supply.
"I don't think the Saudis will intentionally let things get out of hand," he said.
