Yahoo Finance Oil prices up 25% since late June as supply cuts squeeze market
Oil jumped to 10 month highs on Tuesday after key OPEC+ players announced supply reductions intended to keep crude prices high.
On Tuesday Brent International (BZ=F) closed at $90.04 per barrel for the first time since November and West Texas Intermediate (CL=F) futures settled at $86.69 per barrel after Saudi Arabia announced an extension of its unilateral production cuts until December.
Russia also reduced its exports by 300,000 barrels per day through year-end. These cuts are in addition to OPEC+ reductions that started in November of last year.
The market is feeling the upward pressure. Crude futures have rallied about 25% since late June despite a slower-than-expected recovery from China’s economy and increased production output by US producers.
“Between now and next summer we will continue to see prices of crude oil continue to be where it is or go higher,” Ramanan Krishnamoorti, vice president for energy and innovation at the University of Houston, told Yahoo Finance.
He sees no sign of abatement in OPEC+’s supply cut initiatives and Saudia Arabia’s need to fund ambitious internal projects.
“They’re [Saudia Arabia] making money. They are starting to bolster their coffers,” said Krishnamoorti. He sees only one scenario that would create downward pressure on crude.
“If you start to smell a recession coming along, you should anticipate that the price of crude will go down,” he said.
“A return to recession for Europe and/or China and a surprise weakening in Japan's economic growth would likely be precursors to weaker prices from demand destruction,” Rob Haworth, senior investment strategist at U.S. Bank Wealth Management in Seattle, told Yahoo Finance.
While China’s recovery has been lackluster, mobility demand post lockdowns has offset the country’s dampened demand for petrochemicals amid an ongoing property crisis. Industry watchers are paying close attention to the coming months.
Tamar Essner, Vectis Energy Partners principal, told Yahoo Finance Live on Tuesday that the market is starting to appreciate that while Saudi Arabia is a "swing producer," China is "basically a swing buyer."
"They have huge inventories, huge storage. They can buy as much as they want when prices are attractive to them as they definitely were earlier this year,” Essner said, adding that "I think their demand is good but it may start to cool off a little bit in the coming months because they have inventory to work off of."
Her firm expects West Texas Intermediate to stay in the $75 to $90 range between now and the end of the year, barring any geopolitical developments.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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