The prices of oil have been surging for a few months as it recently achieved an 11-month high of over $94 per barrel!!

 

 

When 2023 began, oil was trading around $85 per barrel, substantially below its historic level of $130 per barrel. Oil was trading in a range for the first 2 months of 2023 as it remained above the level of $80/bbl. However, when March began, macroeconomic conditions took a turn for the worse. 

Multiple banks failed in the US as the overall market sentiment was adverse. SVB, Republic, and other banks declined as panic selling overtook global markets. The fall of Credit Suisse sent investors into a frenzy. The Brent Crude lost 18.8% in less than 2 weeks!!

However, Oil did not fall below the $70/bbl mark as it resumed its climb around the end of March. A surprise production cut announcement by the OPEC group helped rally the price even further as their decision supported the price of oil, allowing it to climb all the way up to $87/bbl by mid-April.

Despite the sharp move, the benchmark was unable to maintain such a price level as it fell back. Weakening demand from China and recessionary fears across the West fuelled the downturn resulting in the benchmark wiping out all its gains and declining back to its previous level of $72/bbl. Oil did not see any decisive move in May and June as rate hikes by the ECB and Bank of England kept prices within the range of $72-78/bbl.

July brought some movement in the benchmark as it finally broke through its resistance at $78/bbl after further production cuts by Russia and Saudi Arabia. Supply issues in Libya and Nigeria, coupled with the declining dollar, helped oil prices surge throughout the month, reclaiming its $80/bbl mark.

Although the benchmark saw some correction during August, the overall trend was still up. Since both Saudi Arabia and Russia pledged to continue their production cuts, oil prices received a nudge upwards. Moreover, the robust demand forecast by the International Energy Agency (IEA) resulted in Brent Crude regaining the $90/bbl mark in early September, 10 months after it fell from it.

Indian oil majors have been responding similarly as the stocks of companies like ONGC, Reliance, GAIL, and IOC have reported double-digit growth since oil began surging in early July 2023. 

 


What is the future outlook??

 

 

According to the Brent Crude chart shown above, the benchmark has been steadily gaining since July 2023. Although profit booking resulted in some consolidation during August, the prices resumed their upward climb soon as it breached the $93/bbl level.

After it breached its resistance, the next candle shows that the sellers tried to drag the price back below the level but failed to do so since buyers were sustaining the price above said level. The next day appears to be the same and buyers have been maintaining the price around the same level.

The outlook for Oil appears positive. Firstly, the current demand by the US and China is robust. Oil demand by the US has remained unchanged while China’s oil demand has seen recovery. Although its real estate sector is in shambles, oil demand by the same has grown, thereby pushing the buy-side pressures.

Secondly, Saudi Arabia and Russia, two of the largest producers of crude oil, have announced production cuts. Both countries hold over 20% of the global production together! They have announced combined production cuts of 1.3 million barrels per day. In fact, the world is expected to face oil deficits in the next few quarters!! Since these production cuts aren’t expected to cease anytime soon, the reduced supply is expected to continue driving prices.

Lastly, the demand for oil is expected to keep surging. Although the International Energy Agency has predicted a peak in oil demand by 2030, oil giants like Aramco and OPEC have criticized the same. According to the latter, oil is expected to remain in the picture for the foreseeable future as its demand is expected to grow to 110 million barrels per day by 2030!!

Despite the current slowdown due to the buyer and seller deadlock and a decline due to the US Fed rate hike decision, the Brent Crude is expected to keep going up to $100/bbl before seeing any reversal. As such, the Brent Crude is expected to touch the $100 mark by the end of 2023.