The price of Brent crude ended the week at $78.47 after closing the previous week at $75.19. The price of WTI ended the week at $73.86 after closing the previous week at $70.45.
Oil prices moved upwards to levels not seen since May 24 after the announcement of July 3rd of additional production cuts, which entail the following:
- Saudi Arabia is extending its voluntary production cut of 1.0 million bbl/d through August with the possibility of further extensions
- Russia is planning to decrease its crude oil exports 500,000 bbl/d in August, which is addition to the reduction of the 500,000 bbl/d announced by Russia back in March; however, there is limited evidence that Russia moved forward with this initial reduction
- Algeria chimed in with an announce cut of 20,000 bbl/d during August, which is in addition to the 48,000 bbl/d cut that Algeria made in April
The production cuts align with our view that OPEC+ will be proactive in adjusting supply to align with demand and to place a floor under oil prices. Before the recent production cuts, we were forecasting that demand will outpace supply in 3Q and in 4Q. In addition to the cuts by OPEC+ we are seeing a muted response from non-OPEC producers with their collective production increased by only 1.2 million bbl/d in 3Q23 relative to 3Q22. In comparison, global oil demand is forecasted to increase by 2.1 million bbl/d during the same time frame. We are also expecting that the withdrawals from the SPR (which have been averaging around 1.50 million barrels per week for the last fourteen weeks) will end during mid-August.
While we think that oil prices will zig and zag on an upward trend during the second half of the year, oil prices will still be dampened by concerns about the global economy and oil demand. The US jobs report for June shows that the US added 209,000 jobs, which is the lowest number of new jobs being added since December 2020. Additionally, the number of jobs added in May was revised downward by 33,000 and the number of jobs added in April was revised downward by 77,000. While the unemployment remained at 3.6%, the U6 unemployment (includes discouraged and underemployed workers) increased to 6.9%, which is the highest since August 2022. The workforce participation rate remained at 62.6% for the fourth consecutive month, which compares to the pre-COVID rate of around 63.0%. The prime-age (25-54) participation rate increased to 83.5%, which is the highest in 21 years. During May 2020, the rate fell to 80.2%. The 55 years and over participation rate, however, is only 38.3%, which compares to 40.2% in January 2020. The workforce participation rate for men is at 68.1%, which compares to 69.2% in January 2020. In June 2008, the workforce participation rate for men was at 73.0% and in June 2000 the rate was 74.8%.
A recurring theme is associated with each release of economic data from China -- China’s economy continues to struggle, and the leading indicators are not showing any upturn in the near future. The most recent data indicates that producers’ prices decreased by 5.4% in June in comparison with the previous year and 0.8% from May. While some of the decrease can be attributed to lower energy and commodity prices, the extent of the decrease also indicates weakening demand. The good news is that decreasing prices enables China to adopt more accommodating monetary policies to boost its economy.
For a complete forecast of refined products and prices, please refer to our Short-term Outlook.
About the Author: John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.
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