Sunday 24 / November / 2024
Muscat: Crude oil prices reached the highest level since the last week of April-2023 after seeing consistent gains since the end of June-2023, according to a new report.
“After reaching multi-month low levels last month and the biggest monthly decline in prices this year in May-2023, crude oil prices breached the $80 per barrel mark on 12-July-2023 to reach $80.11 per barrel,” the Kuwait-based Kamco Invest said in its Oil Market Monthly Report, July 2023.
“The gains came initially on the back of tighter supplies as Saudi Arabia’s additional voluntary cuts came into force coupled with cuts announced by Russia and Algeria. Further support came from optimism on the demand front after inflation in the US came in weaker-than-expected and to some extent economic sops announced in China,” it added.
“Nevertheless, a slowing Chinese economy with continued fall in exports and imports as well as higher inventories weighed on prices partially offsetting the overall gains,” the report further said.
In its monthly report, the IEA said it expects crude oil demand to reach a record level this year, although the pace of growth would be smaller-than-expected. The agency, however, slashed its oil demand forecast by 220,000 barrels per day from last month’s forecast and now expects demand to grow by 2.2 mb/d this year. The IEA also highlighted a slowing industrial activity in the OECD region, particularly in Europe, that is expected to dent overall demand growth during the year.
Meanwhile, average crude oil prices continued to decline during June-2023 due to depressed prices for the bulk of the month only to see gains towards the last week of the month. Opec crude oil basked averaged at a multi-month low of $75.19 per barrel registering a month-on-month decline of 0.8 percent. The fall in average Brent spot prices was slightly higher at 1.4 percent at an average of $74.7 per barrel while the average Kuwait crude grade witnessed a similar decline of 1.3 percent and averaged at $76.4 per barrel. In terms of forecast, the EIA marginally lowered its forecast for Brent crude by $79.34 per barrel from its previous forecast of $79.54 per barrel. The forecast for 2024 was kept unchanged at $83.5 per barrel.
Opec oil production & spare capacity
After seeing declines for the previous three consecutive months, Opec crude oil production saw marginal growth during June-2023. According to Bloomberg data, production during the month stood at 28.6 mb/d in June-2023 as compared to 28.5 mb/d during May-2023, registering a growth of 80,000 barrels per day or 0.16 percent month-on-month (m-o-m). By contrast, Opec secondary sources showed a slightly bigger production growth of 91,000 barrels a day to reach an average production of 28.2 mb/d during June-2023 as compared to 28.1 mb/d during the previous month. The increase in output during the month mainly reflected growth in production mainly in Iraq, Nigeria and Venezuela based on data from Opec and Bloomberg. Opec secondary sources showed a sharp growth in production in Iran by 54,000 barrels per day (Bloomberg data showed a decline) while production in Angola and Algeria declined by 46,000 barrels and 16,000 barrels per day, respectively.
Oil production in Saudi Arabia remained almost flat at 10 mb/d during June-2023. The Kingdom is expected to implement additional production cuts of 1 mb/d during July-2023 and August-2023 that would result in production going to multi-year low levels at around 9 mb/d, according to the Ministry of Energy. The Kingdom also hinted that the additional cuts could be extended beyond August-2023.
The increase in Iran's oil production during June-2023 came after reports showing higher exports from the country. A report from S&P Global said that this could be a result of the US relaxing sanctions enforcement on the country. A similar action towards Venezuela was also highlighted by S&P with the Opec member also reporting an increase in production during June-2023.
Iraq witnessed one of the biggest growth in production in Opec during June-2023. The country produced at an average rate of 4.2 mb/d registering a m-o-m increase of 54,000 barrels per day, as per Opec secondary sources. Iraq also recently signed a long-delayed $27 billion energy deal with TotalEnergies aimed at increasing the country’s oil and gas output in the coming years. As per the deal, the oil production capacity at Basra’s Ratawi field is planned to increase by 120,000 barrels per day in two years followed by a further increase to 210,000 barrels per day within four years. The country plans to increase production capacity to 6 mb/d by offering concession agreements with global oil companies.
On the supply side, Saudi Arabia announced it would extend the 1 mb/d additional cuts to August-2023 aimed at stabilising and bringing a balance to the oil market. Russia joined with another 0.5 million barrels per day (mb/d) of cuts while Algeria announced cuts of 20,000 barrels per day bringing the total pledged cuts by Opec+ to 5.2 mb/d.
Meanwhile, the US Energy Information Administration (EIA) has forecasted record production in the US this year although the oil rig count in the US continues to stay well below pre-pandemic levels. The latest weekly report from Baker Hughes showed the oil rig count in the US declining for the 10th time in 11 weeks to reach 537 after declining by 3 for the week ended 14 July 2023.
On the production front, Opec crude oil production increased for the first time in three months, albeit marginally, during June-2023. Opec production averaged 28.2 mb/d, according to Opec secondary data, registering an increase of 91,000 barrels per day from the previous month. The increase was led by higher production mainly in Iran and Iraq, while declines in Angola and Libya partially offset the overall growth. Production in Saudi Arabia was flattish at 10 mb/d. Crude oil production in the US also remained flattish at 12.3 mb/d after sliding by 100,000 barrels per day from the previous week.
