With the adoption of production cuts by the OPEC+ countries, an extended version of the Organization of the Petroleum Exporting Countries (OPEC), the issue of energy security has once again come to the forefront. As fluctuations in oil prices give way to an upward trend, investors have reaped long-term gains. However, it is anticipated that this streak of gains will not last, and the upward trend will come to an end. Both the International Energy Agency (IEA) and OPEC+ are in agreement that the world is heading towards its largest oil supply deficit. [1]
A report prepared by the IEA illustrates this view as global demand is expected to hit a record high of 103 million barrels in June, with forecasts for August indicating that a new record will be set. The second week of August saw the lowest price increases. Nevertheless, prices reached their highest level in the past nine months, with 84.89 dollars per barrel. Furthermore, Brent, the global benchmark for crude oil, reached its highest level in the past seven months at $88.10 per barrel. [2] Kuwait’s crude oil exports have also fallen by approximately 10% in the first seven months of the year, averaging 1.61 million barrels per day.
Turmoil in the banking sector of the United States (US) can have adverse effects on the oil market. A Baker Hughes report for this month indicates that both oil and general drilling counts have fallen to 17-month lows. Some analysts interpret this as a sign that US production rates will decline. However, an EIA report suggests that the recent increase in crude oil prices and well-level efficiency will lead to an unexpected increase in US oil production.
The Wall Street Journal attributes the weakness in the oil market to an unexpected reduction in the interest rate from 2.65% to 2.5% by a significant facility in China that directs one-year loans to banks, along with providing the banking system with 55.2 billion dollars in new credit.[3] In particular, concerns are growing [4] about the world’s second-largest economy due to problems in China’s real estate market, especially as investors increase their investments in Nvidia and Apple shares. This situation is seen as a signal of a decline in oil prices. It is believed that as long as China does not provide significant stimulus, global growth concerns will not dissipate in the near future, and the oil markets will continue to contract.[5] Moreover, a weak yuan leads to a stronger dollar, which has led to a stable decrease in the gold market. .
On the other hand, OPEC takes an optimistic stance on 2024 oil demand, predicting that global oil demand will be 2.25 million barrels per day higher than this year. According to OPEC, the main parameters that can ensure stability in the oil market are the careful evaluation of market conditions and the proactive and careful measures taken by both OPEC and external producing countries.
In conclusion, the decision by OPEC+ members to cut production has led to an increase in global oil prices. This situation has worked in favor of China, which created a supply buffer before refinery purchases declined. As a result, China has achieved growth in overseas oil and gas production, and in June, it was able to reach daily crude oil exports of 12.67 million barrels. [6] In this context, the slowing of the Chinese economy will negatively impact global economic growth. OPEC, OPEC+, and the IEA are confident that China, the world’s largest oil importer, will revive its crude oil demand for the rest of 2023. [7] Besides OPEC production cuts, the Ural crude oil price exceeding its upper threshold has also adversely affected Russia’s oil exports. In this framework, the United States will continue to support oil prices. .
[1] “The Energy Report: Peak so Far”, Investing.com, https://www.investing.com/analysis/the-energy-report-peak-so-far-200640884 , (Erişim Tarihi: 18.08.2023).
[2] “Commodities Week Ahead: Oil Bulls Cling to $80 as Fed Minutes, Retail Sales Beckon”, Investing.com, https://www.investing.com/analysis/commodities-week-ahead-oil-bulls-cling-to-80-as-fed-minutes-retail-sales-beckon-200640910 , (Erişim Tarihi:17.08.2023).
[3] “The Energy Report: Fitch Things Up”, Investing.com, https://www.investing.com/analysis/the-energy-report-fitch-things-up-200640976 , (Erişim Tarihi: 18.08.2023).
[4] “Yields Rise Alongside Dollar; Tech Leads the Charge Higher as Stocks Rebound”, Investing.com, https://www.investing.com/analysis/yields-rise-alongside-dollar-tech-leads-the-charge-higher-as-stocks-rebound-200640949 , (Erişim Tarihi: 17.08.2023).
[5] Aynı yer.
[6] “China Oil Buying Frenzy Cools as Record İnventory Shields İt From Price Rally”, Hellenic Shipping News Worldwide, (Erişim Tarihi: 19.08.2023).
[7] “Oil Settles Lower as China Fears, Rate Hikes Counter Tight US Supply”, Reuters, https://www.reuters.com/business/energy/oil-prices-steady-markets-weigh-weak-china-data-tighter-crude-supplies-2023-08-16/, (Erişim Tarihi: 18.08.2023).
