Oil Ends Month With A Bang, Analysts Think Bullish Spirit May Endure

But Stratas Advisors warns of continued headwinds: File Image/Pixabay

The steepest monthly gains for oil prices since January of 2022 were achieved Monday, as traders continuing their concern for tightening oil supplies propelled the commodity to a daily gain of over 1 percent – and the analytical community focused on rising demand later this year.

The trading sentiment was informed in part by a Reuters survey published Monday that revealed total production from the Organization of Petroleum Exporting Countries (OPEC) to be 840,000 barrels per day (bpd) lower in July, and output from Saudi Arabia fell by 860,000 bpd during that month.

Also, Washington has begun refilling its Strategic Petroleum Reserve from its lowest level in decades, and analysts estimated that U.S. stockpiles declined by 900,000 barrels in the week to July 28.

Phil Flynn, senior market analyst at Price Futures Group Inc., suggested that Monday's gains were the outcome of investors finally coming around to facing the reality of fundamentals.

He said, "After the end of SPR releases and recession fears and a liquidity drain due to bank stability fears, which caused the markets to ignore a looming supply squeeze, the coming supply deficits are getting too big to ignore."

The September contract for Brent rose 0.7 percent to close at $85.56 per barrel, while the more actively traded October contract rose $1.02, or 1.2 percent, to settle at $85.43 per barrel; West Texas Intermediate settled up $1.22, or 1.5 percent, to $81.80 per barrel.

WTI has rallied more than 15 percent this month, putting it on track for the biggest gain since January of last year.

For its part, Stratas Advisors on Monday forecasted that oil demand will outstrip supply by 1.24 million bpd in third quarter of this year and by 1.11 million bpd in the fourth quarter; however, it added that "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."

Stratas went on to note that another factor weighing on oil prices remains the economy; it explained that nearly half of U.S. 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."

Another damper on Monday's party was data from China showing that manufacturing contracted for a fourth month in July, while non-manufacturing expanded slower than expected.

Still, bullish sentiment remained unfazed, with some pundits going so far as to suggest it might be a trend: Goldman Sachs Group Inc. analysts including Daan Struyven and Yulia Zhestkova Grigsby stated in a note, "Record high demand and Saudi supply cuts have brought back deficits…the market has abandoned its growth pessimism."