The barrel of Brent crude started a new high at the end of June that led to it touching $85 a barrel in the second week of August. A rise of 18% in just under a month and a half indicates the possibility of a correction or, on the contrary, an upward continuation that brings it closer to the maximum of the last twelve months, which is $98 per barrel. .
Why did it rise?
The fact is that the main causes must be sought on two different fronts. The first is found in the production cuts imposed by OPEC, while the second is focused on increasing consumer demand. And it is that in recent months, oil exporting countries have withdrawn a total of 1.5 million barrels per day from the market. In fact, production is at a two-year low.
On the other hand, demand, especially air, rebounded strongly, returning to normal levels. In fact, demand has reached new world records, exceeding 100.9 million barrels required from all countries of the world.
Although there are other important factors, such as the increases in crude oil prices implemented by Saudi Arabia, the combination of these two main factors are the reasons that prompted Brent to touch $85 a barrel again. However, one now wonders if this rally will continue or if a price correction is imminent instead.
What can be expected from oil?
Rising oil prices may be “self-correcting” by raising fears of slowing demand driven by the global macro economy, while higher prices will also test OPEC’s resolve to cut supplies. On the other hand, the forward curves are lagging well, reflecting the prediction of a decline. “The world is watching, because higher prices will undermine inflation expectations,” said Ben Laidler, global markets analyst at multi-asset investment platform eToro. and cut interest rates.”
While it is true that a slowdown in the Chinese economy may be a cause for an oil correction, the strength of Western economies acts as a counterweight to keep prices from rising. But not only that, but the United States Strategic Oil Reserves have reached their lowest levels since 1985, which means that the country is starting to fill its stocks with crude oil again.
Thus, it is worth looking to the future and what investors are thinking at the moment. That is, in Laidler’s words, “futures contracts show that investors see lower prices. This ‘pullback’ can be unexpectedly positive. Higher prices today encourage inventory sales, which supports future prices. Stimulate production today rather than invest in production It allows operators to buy more oil at the same cost through contracts at lower prices.”
In short, the barrel of Brent crude has seen a significant rally, reaching $85 a barrel after an 18% increase in just over a month and a half. This recovery was mainly due to OPEC production cuts and increasing demand, especially in the aviation sector. Although factors such as price increases by Saudi Arabia also played a role, the combination of supply reduction and demand increase was crucial. However, there is still uncertainty about the future direction of prices, as the Chinese economy and the US strategic oil reserves can exert an influence. Investors anticipate potential price declines, but this dynamic may paradoxically lead to price support in the future due to strategic decisions in production and inventory.
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