Oil prices are currently trading 1% higher, extending yesterday’s recovery. Following yesterday’s release of disappointing trade data from China, which showed weak foreign and domestic demand, oil has fallen significantly. The data also showed that China’s crude oil imports fell to their lowest level since January in July, dropping 18.8% year-on-year to 10.29 million bpd. This is a noticeable drop considering that as recently as May, imports were at a record high of over 17 million barrels per day. Even with a slight decline in Chinese demand in the coming months, this year will be a record year for China in terms of oil demand. In addition, OPEC+ is keeping supply low and a deficit of around 1.5-2.0 mb/d is expected in the second half of the year. Such a deficit led to a sharp increase in prices to USD 150 per barrel in 2007-2008. However, it is important to note that the deficit is now the result of a decision to limit supply.
US light crude oil, known as WTI, is surpassing the local highs of April this year, when OPEC+ announced its first production target cut this year. Reduced oil production is currently having a tangible impact on market fundamentals. Oil is trading at its highest level since November, a warning signal suggesting that energy prices will have a positive impact on inflation at the end of this year if prices remain at current or higher levels. An EIA (environmental impact assessment) study has raised the outlook for global oil demand for 2023 by 30,000 barrels.
The U.S. Energy Information Administration said on Aug. 8 that expected higher oil prices triggered by Saudi Arabia’s expanded voluntary production curbs are creating incentives for non-OPEC producers to increase their output, allowing for continued growth in global oil production in 2023 and 2024. The EIA also said for the near-term energy outlook that the United States will lead oil production, forecast to exceed 12.9 million barrels per month for the first time by the end of 2023.
Combined non-OPEC producers are expected to increase production by 2.1 million barrels per day in 2023 and 1.2 million barrels per day in 2024. This is seen as offsetting production declines from the OPEC+ alliance, and the EIA projects global oil production to increase by 1.4 million barrels per day in 2023 and 1.7 million barrels per day in 2024. For 2023, the price for US light WTI crude is expected to be around $77.8 per barrel and heavy Brent crude around $82.6 per barrel.