Oil hitting $100 is ‘entirely possible’

Global oil market is geared for a rally beyond $90 per barrel in the coming weeks with Saudi Arabia unlikely to reverse the cuts amid forecasts of an impending record global demand surge.

Analysts argue that the market is in a bullish state and heading well into the $90 per barrel range as the International Energy Agency forecast record global demand and tightening supplies. Prices have been seeing sustained gains over the past several weeks in a row, the longest such streak since 2022.

Bob McNally, president at Rapidan Energy, was quoted by CNBC saying that oil hitting $100 per barrel is “entirely possible.” Oil prices are climbing a wall of doubt and skepticism, he said. So far, traders have been focused on the lack of a significant drop in Russian supply. The market is also “dancing in a macro minefield,” McNally told CNBC.

He said there are good reasons to be skeptical. But fundamentals are fundamentals. Opec+ is going to put a huge deficit into the market into the second half.

The IEA estimated that global oil demand, which hit a record 103 million barrels per day in June, could scale another peak in August. Output cuts from Saudi Arabia and Russia set the stage for a sharp decline in inventories over the rest of 2023, which the IEA said could drive oil prices even higher.

Analysts at Kamco Invest said oil prices roared towards the $90 per barrel mark following consistent gains since the fourth week of July-2023. The most recent support to prices came from record demand from Asian refiners for US crude deliveries amid obstacles that included high temperatures impeding pipeline deliveries to ports in the US. Reports of continued buying of Saudi crude oil by China also supported prices, they pointed out.

The Saudis are unlikely to reverse the cuts at $90 or $92 oil, analysts said. The Kingdom is looking to ensure that the deficits created are materializing before deciding to put the brake there.

Opec said recently that it expects global oil demand to rise by 2.44 million bpd this year, unchanged from its previous forecast. Prospects for the oil market look healthy for the second half of the year, it said.

Saxo Bank analysts said in a market commentary that the downside risks remain limited as long as Opec+ maintains production at the current tight levels, not least considering IEA’s forecast that oil demand may rise even further.

Oil production by the Opec witnessed the steepest decline in more than three years during July-2023 that came after the first increase in production in four months during June-2023. Average production during the month reached a 21-month low level of 27.8 mb/d, according to Bloomberg data, resulting in a m-o-m decline of 0.9 mb/d.

With the ongoing production cuts, the Opec expects a slight decline in demand during Q4-2023 coupled with an increase in supplies from outside the Opec would lower the demand for its crude. That said, the IEA said in its monthly report that an average of 29.8 mb/d is need from the Opec during the last quarter of the year to balance the market as compared to around 27.9 mb/d the group produced during July-2023, resulting in a shortfall of around 2 mb/d during Q4-2023.

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