World oil prices are being accelerated by growing demand for physical crude. The barrel’s reaching the psychological milestone of $90 is a matter of several weeks, not even months.
On August 10, Brent crude quotes at the London Stock Exchange (ICE Futures Europe) exceeded $88 per barrel for the first time since January 27. As of August 15, the barrel cost over $86, with the lost couple of dollars being mere exchange volatility, while the general upward trend in black gold prices is here to stay.
The marked increase in July and August is primarily due to the permanent build-on of OPEC+ alliance’s steps to cut supply (production and/or exports). OPEC+ flagships Saudi Arabia and Russia agreed to maintain relatively low volumes of oil production and exports in September as well, including through voluntary supply quotas.
In particular, Russia will keep reducing oil exports to world markets in September, this time by 300, 000 barrels per day (b/d). A statement to this effect came on August 3 from Deputy Prime Minister Alexander Novak. A month earlier, Russia pledged to voluntarily reduce August oil exports by 500, 000 b/d. So, the country will restore outward trade, though carefully.
The Russian Ministry of Energy expects domestic companies to produce some 515 million tons of oil this year. Despite potential minor deviations, a lot will depend on further decisions within OPEC+.
The cartel’s Joint Ministerial Monitoring Committee (JMMC) wrapped up its meeting on August 4 without recommended changes to production quotas, setting the next one for October 4. This is reported in OPEC’s press release. JMMC also expressed gratitude to Saudi Arabia and Russia for their additional voluntary output reduction by a respective 1 million b/d and 300, 000 b/d in September.
The JMMC ministers reaffirmed commitment to the member states’ agreement that was extended until the end of 2024 during the OPEC+ meeting on June 4.
OPEC+ countries produced 35.9 million b/d of oil in July, while the agreement demands that the output be 39.57 million b/d, according to IEA analysts. But this circumstance is generally ignored by stock speculators — the barrel keeps moving towards $90, albeit slower than last year.
In its latest review, the International Energy Agency (IEA) noted that global oil demand has soared to a record level and may grow yet more in August, contributing to a further soil market rally.
Record-high oil demand has entailed an increase in bonuses that traders pay for batches. Prices for spot purchases of goods from the Middle East increased in the first few days of the second decade of August amid high demand from Chinese buyers. There has also been intense trade in the North Sea — Asian buyers are interested in shipments of American crude. This is evidence of a new demand cycle underway.
A favorable market environment for oil exporters has a positive effect on their incomes. In particular, as per the IEA’s August report, July saw Russian treasury revenues from oil exports increase by $2.5 billion (20%) against June – up to $15.3 billion – while maintaining the same level of volumes amid higher oil prices and lower discounts of Russian oil cost against the benchmark.
The average July prices for Urals crude broke through the price cap, as indicated by the Russian Finance Ministry’s conclusions and a recent IEA report. Actually, both rely on data by the Argus international pricing agency. The Ministry of Finance reported that the average July price of Urals was $64.37 per barrel, up from June’s $55.28. In early August, prices keep rising and have exceeded $65. The last time Urals oil cost that much was in November 2022.
The notorious price cap turns out to be no longer working. The US Treasury Department responded on August 3 that it still considers it an effective tool in achieving the goals, despite Russia’s present-day sales beyond it. And the US authorities limit themselves to verbal reminders addressing Russian oil buyers to respect the standard. The White House prefers de-risking, since a clampdown scenario may bring prices further up, which is fraught with severe social upheaval or Joe Biden’s undermined re-election campaign.
Moreover, the summer price rise of the barrel has already started affecting the gallon: retail gasoline prices grow again in the United States, threatening to exacerbate the inflation problem. According to the American Automobile Association (AAA), the average gallon price is $3.89 as of August 7, which is a record-high since October 2022.
