ALBAWABA – Oil prices are poised for a hike as oil inventories drop around the world amid deep output and supply cuts, news agencies reported Monday.
Despite sluggish economic recovery in China, the world’s second-largest economy and oil consumer, demand is reportedly outpacing supply, amid deep cuts by some major oil producers.
The Organization of Petroleum Exporting Countries and its allies, including Russia, known as OPEC+, have enacted a number of supply and output cuts throughout the year.
OPEC+ leader Saudi Arabia also recently announced that its latest production cut will carry well into September, official statements have confirmed.
As a result, oil prices are expected to rise, according to Reuters, as oil inventories drop, playing a bigger role in determining oil prices than the strength of the United States (US) dollar.
This is especially true now that Western sanctions on Russia have accelerated oil trading in other currencies, the Canada-based news agency reported.
"We expect stocks to draw relatively aggressively in July, and by the end of August, we should be through the stock builds that we saw in the first half of the year," Christopher Haines, an analyst at Energy Aspects, told Reuters.
"We are on the cusp of supply tightness. Saudi cuts are essentially accelerating the timeline," he said.
Both the International Energy Agency (IEA) and OPEC+ expect oil demand to outpace supply this year, leading to overall inventory draws to the tune of 400,000 to 500,000 barrels per day (bpd). Most of the estimated draw is accounted for by the second half of the year.
Although global oil inventories increased in May to their highest since September 2021, according to the IEA, driven by a substantial rise in non-OECD countries, Reuters’ analysts say signs of tightness are appearing, in the United States in particular.
Crude stocks at the Cushing storage hub in Oklahoma, US, fell by 2.9 million barrels in the week to July 14, the steepest draw in more than a year and a half according to the US Energy Information Administration (EIA), as reported by Reuters. Another 2.6 million barrels were drawn the following week, leaving them well below their five-year average.
For fuel, data from consultancy FGE Energy, obtained by Reuters, on key hubs in the US, northern Europe, Japan, Singapore and Fujairah in the United Arab Emirates, shows overall oil inventories dropping aggressively so far this month, both onshore and at sea.
Weekly stocks of diesel, jet fuel and fuel oil in the five regions are also currently below their five-year averages.
US gasoline stockpiles of 217.6 million barrels are at their lowest level for the time of year since 2015, according to EIA data, and 5 million barrels, or 5 petcent, lower than the prior 10-year seasonal average.
