Crude oil prices experienced a surge on Monday, driven by optimistic expectations of tightened supply in the latter half of the year, overshadowing potential tightening measures from the Federal Reserve and the European Central Bank.
At 09:05 ET (13:05 GMT), U.S. crude futures rose by 1.1% to $77.91 per barrel, while the Brent contract climbed 0.7% to $81.47.
The market’s upward trajectory was buoyed by recent news that Saudi Arabia and Russia, the world’s leading oil exporters, would deepen their oil production cuts beginning in August, in a concerted effort to bolster crude prices. Last week marked the fourth consecutive week of gains for both benchmarks, setting a positive tone for the new week.
A contributing factor to the favorable sentiment is the anticipation of China, the largest oil importer, rolling out additional stimulus measures to revive economic growth. The Chinese leaders’ commitment to bolstering domestic demand and economic operations further boosted confidence in the market.
China’s increasing demand for oil is expected to set a new record this year, with the International Energy Agency projecting a rise of 2.4 million barrels per day in 2023, surpassing the previous year’s increase. Goldman Sachs predicts substantial deficits in the second half of the year, reaching nearly 2 million barrels per day in the third quarter, fueled by the surge in demand.
Goldman’s head of oil research, Daan Struyven, stated that Brent crude is likely to reach $86 per barrel by year-end, representing a 6% gain from current levels. The positive outlook is further supported by the decline in U.S. oil rigs, with Baker Hughes reporting a decrease of 7 rigs to 530, the lowest count since March 2022, thereby impacting supply in the world’s largest consumer of oil.
On the international front, the Group of 20 major economies failed to reach a consensus over the weekend on reducing fossil fuels. These countries, accounting for a significant portion of global emissions and gross domestic product, would require a unified effort in the fight against climate change.
In conclusion, crude oil prices are experiencing a rally as demand reaches new heights, and supply is anticipated to tighten further in the coming months. While the G20’s inability to agree on cutting fossil fuels adds uncertainty, market sentiment remains largely optimistic.
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