The price of Brent crude ended the week at $84.41 after closing the previous week at $81.07. The price of WTI ended the week at $80.58 after closing the previous week at $77.02. With last week’s increase, the price of Brent crude oil (and the price of WTI) finally broke through the 200-day moving average. Additionally, the price of Brent crude has reached the highest level since mid-April of this year. The price of DME Oman ended the week at $85.08 after closing the previous week at $82.49.
During third quarter 2023, we are forecasting that oil demand will outstrip supply by 1.24 MMbbl/d and by 1.11 MMbbl/d in the fourth quarter. Prices will continue to be moderated by the risk of additional supply coming back onto the market. While OPEC+ members have agreed to additional production cuts, Russia continues to take steps to secure its ability to export oil. As reported by the Wall Street Journal, Rosneft is finalizing long-term deals to sell through a tender, which will represent the largest volumes in recent years. The deals also highlight the extent of the shift away from western companies with major counterparties involving non-western trading companies—Bellatrix Energy, incorporated in Hong Kong, and Amur and Tejarinaft, both registered in the United Arab Emirates. Additionally, the oil will be moved by tankers not insured by western entities.
Another factor weighing on oil prices remains the concerns about the global economy. Last week, the U.S. Commerce Department released its initial estimate for second quarter GDP growth of 2.4% on an annual basis. Besides the overall economic growth, the report included the good news that nonresidential fixed investments increased by 7.7%. The report, however, also highlights the risk we pointed out last week with economic growth in the U.S. being heavily reliant on consumer spending. Nearly half of the economic growth in the second quarter was contributed by consumer spending, which is occurring while consumer debt is at an all-time high, as is the interest rate being applied to the debt. Additionally, the job market is cooling with a slowing rate of job additions in 2023, which has decreased significantly from 2022 (399,000 monthly to 278,000). The Personal Consumption Expenditure (PCE), which is a favorite inflation factor of the Federal Reserve, increased by 4.4% (excluding food and energy) in comparison to 4.6% during the first quarter of this year. Based, in part, on this indicator being more than twice its inflation target, we are expecting that the Federal Reserve is not done with rate increases for this year.
The latest data pertaining to China’s economy continue to indicate that economic growth in China will remain muted. The Purchasing Manager’s Index (PMI) in July for manufacturing was 49.3, which indicates contraction for the fourth consecutive month. The non-manufacturing PMI was 51.5, which is the lowest reading of the year.
Recent second quarter data for Europe show some improvement after the previous two quarters of negative growth. France’s economy grew by 0.5%, Spain’s economy grew by 0.4%, while Germany’s economic growth was flat. Europe, however, continues to face challenges with inflation remaining relatively high, even as the ECB raises interest rates. With the latest interest rate increase that was announced last July 27, interest rates in the Eurozone have reached 3.75%, which is the highest level since the launch of the euro in 1999.
For the upcoming week, we are expecting that the price of Brent crude oil will move with the next resistance level at $87.00.
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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