OPEC Inspires More Gains For Oil, But Rally May Be Short Lived

Tuesday ended with news of a substantial U.S. stockpile build: File Image/Pixabay

A bullish outlook for global energy demand expressed by the Organization of the Petroleum Exporting Countries (OPEC) inspired traders on Tuesday to hike oil prices by nearly 2 percent to a near 10 month high.

In its latest monthly report, OPEC stated that world oil demand will rise by 2.25 million barrels per day (bpd) in 2024, despite economic headwinds, which to many analysts was evidence that the energy market was going to be a lot tighter than initially thought.

The U.S. Energy Information Administration was equally optimistic: its Short Term Energy Outlook predicted global oil output would rise from 99.9 million bpd in 2022 to 101.2 million bpd in 2023 and 102.9 million bpd in 2024, while world demand will rise from 99.2 million bpd in 2022 to 101 million bpd in 2023 and 102.3 million bpd in 2024.

The EIA also stated that due to inventory declines later this year, Brent will average $93 per barrel in the fourth quarter.

Not to be outdone, the International Energy Agency on Tuesday stated that demand for fossil fuels will hit an all-time high before 2030, a situation that worried executive director Fatih Birol because it wouldn’t be fast enough to limit global warming to 1.5 degrees Celsius above pre-industrial levels.

Still, he declared that “this age of seemingly relentless growth is set to come to an end this decade, bringing with it significant implications for the global energy sector and the fight against climate change.”

Brent on Tuesday settled up $1.42, or 1.6 percent, at $92.06 per barrel, while West Texas Intermediate settled up $1.55, or 1.8 percent, at $88.84 – gains that filtered into fuel markets with gasoline at the highest seasonal price level in the U.S. in a decade and diesel exceeding $1,000 per ton in Europe.

But not everyone was impressed by Tuesday’s oil trading activity: echoing earlier pullback warnings from Bloomberg due to the commodity skirting overbought territory, Vandana Hari, founder of Vanda Insights in Singapore, said, “The upward momentum is exhausted for now; crude needs fresh cues to pick a direction, [and] we may see a holding pattern of around $90 for Brent.”

Both JPMorgan Chase & Co. and RBC Capital Markets stated that they don’t expect prices to reach $100 per barrel, even though Goldman Sachs Group recently thought this was a possibility.

As always with oil trading, news at end of Tuesday suggested that the latest rally could be halted just as quickly as it started: the American Petroleum Institute (API) reported a 1.174 million barrel build in U.S. crude inventories, compared to the previous week's 5.521 million barrel draw.

Gasoline inventories also rose by 4.21 million barrels, compared to a 5.09 million barrel draw the week prior.