Crude oil price outlook: expect further rallying in the short term
- Even with the unexpected build in US crude oil inventories, strong demand has sustained prices above $120.
- There are heightened hopes over the return of Chinese demand with easing COVID-19 restrictions.
- UAE's Energy Minister believes that crude oil price is yet to peak.
Crude oil price has held steady above the critical level of $120 per barrel as strong demand in the US remains a major bullish driver. The easing of COVID-19 restrictions in China has further boosted the prices. As at the time of writing, WTI futures – the benchmark for US oil – was trading at $121.80 after pulling back from the three-month high hit in the previous session at $123.40. At the same time, Brent futures are at $123.36.
Crude oil price is still trading above the previously evasive zone of $120 despite the unexpected build in US inventories. Data released by the Energy Information Administration (EIA) on Wednesday showed that crude oil stockpiles rose by 2.025 million barrels in the week ending on 3rd June. Interestingly, analysts had predicted a draw of 1.917 million barrels. At the same time, gasoline inventories dropped by 0.812 million compared to the expected build of 1.075 million barrels.
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Even with the soaring crude oil price, demand in the US has remained strong as the region gets deeper into the driving season. Besides, the growth of China’s exports has heightened hopes that global oil demand will rise further in the foreseeable future. The trade data released earlier on Thursday showed that exports in the world’s largest crude oil importer grew by 16.9% in May compared to the prior reading of 3.9%.
According to UAE’s Energy Minister, Suhail Al-Mazrouei, the surge in crude oil price is yet to peak. During a conference held in Jordan on Wednesday, the minister noted that the anticipated easing of coronavirus restrictions in China would further boost demand at a time when supplies remain tight.
UAE and Saudi Arabia are the only two OPEC+ members with significant spare capacity. Even so, the amount is only enough to partially upset the gap created by the war in Ukraine and subsequent sanctions by the West on Russia. With regards to increasing production, Al-Mazrouei stated, “the situation is not very encouraging when it coming to the quantities that we can bring”.
In the past week, OPEC+ announced that it would increase output by 648,000 bpd in July and a similar amount in August. The figure represents a rise of about 50% above the previously agreed upon amount of 400,000 bpd. Even so, the members are still struggling to meet their quotas.