The price of Brent crude ended the week at $90.65 after closing the previous week at $88.45. The price of WTI ended the week at $87.51 after closing the previous week at $85.55. The price of DME Oman ended the week at $91.85 after closing the previous week at $89.72.
The extension of the supply cuts from OPEC+ have been able to overcome concerns about the global economy and oil demand and to push price of Brent crude above $90 for the first time since November 2022. Since Saudi Arabia announced a voluntary production cut of 1.0 MMbbl/d on July 3, the price of Brent Crude has rebounded from $74.65. The recent developments in the oil market have aligned with our expectation that OPEC+ would be proactive in adjusting supply as required to counteract disappointing economic news and negative trader sentiment. Additionally, we forecasted that oil demand would be sufficient, along with the supply cuts, to push the oil market into a deficit, and consequently, oil price would move forward on an upward trend, albeit not on a straight line.
Looking forward, however, a further boost from supply cuts is unlikely with Saudi Arabia’s production currently reduced to 9.0 MMbbl/d. We also think it will be increasingly tempting for other OPEC+ producers to increase supply given the higher prices and that the effective spare capacity of OPEC+ is approaching 6.0 MMbbl/d. Additionally, while there have been production cuts, there are others that are increasing their production. Previously, we highlighted increasing production from African producers (including Nigeria and Libya) and sanctioned producers (namely Venezuela and Iran). U.S. production continues to increase this year, even though the rig count has been decreasing. There are several factors that are resulting in this apparent contradiction:
- Production from the Permian has been increasing significantly and contributing a greater share of overall U.S. production in comparison with the pre-COVID period.
- In the Permian Basin, the monthly completion count has reached pre-COVID levels, despite the low rig count because the inventory of DUC wells has declined from 3,514 wells in July 2020 to 856 wells in July 2023.
- Drilling activity in the Permian Basin is becoming more efficient with wells per rig increasing by 19%.
- The average lateral length of a horizontal Permian well has increased by around 15% in comparison to 2019, while the average proppant loading has increased by approximately 7%.
- The longer lateral lengths and the increased proppant loading has resulted in the performance of Permian wells increasing by around 15% compared to their performance in 2019.
For the upcoming week, we are expecting that the price of Brent crude oil will drift sideways.
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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