The global oil market has been on a rollercoaster ride recently, with prices soaring to levels not seen since November of the previous year. As of now, a barrel of Brent oil is fetching $94.4, while the American benchmark, WTI, is priced at $91.3. This bullish trend in oil prices has been attributed to various factors, and it appears that the surge is far from over.
The Upward Trajectory
Since June, the oil market has experienced a remarkable surge, witnessing a staggering nearly 30% increase in prices. This meteoric rise can be attributed to a multifaceted blend of influences. Notably, the deliberate production cuts undertaken by major oil players, Saudi Arabia and Russia, have exerted substantial downward pressure on supply. Furthermore, the anticipation of a robust economic recovery in China has propelled prices even higher. Consequently, it comes as no surprise that the price of Brent oil, which stood at $72 per barrel in June, has surged upward, surpassing the $94 per barrel mark just last week.
While the impact of oil price increases has reverberated globally, certain nations have displayed a greater degree of resilience, thanks to proactive government initiatives. A prime example is Israel, where the Ministry of Finance astutely opted to introduce fuel subsidies, thereby providing a protective buffer. Contrasting this with the United Kingdom, where petrol prices surged by 7%, and the United States, where prices soared by an even steeper 10%, underscores the varying degrees of vulnerability experienced by different countries in the face of this oil price surge.
Factors Driving the Increases
The reduction in oil production by Saudi Arabia and Russia, totaling 1.3 million barrels per day until the end of 2023, has had a notable impact. However, two other factors have exacerbated the situation. First, Storm Daniel in Libya claimed over 11,000 lives and prompted the temporary closure of four oil ports. This has disrupted the supply chain, as 85% of Libyan oil goes to Europe. Second, China’s still robust demand for oil has further strained global supply. China, the world’s second-largest oil consumer, has been a major driver of the oil price surge. In July, China’s oil production reached 64.69 million tons, a 19.6% increase compared to the same period last year. This strong demand has placed pressure on global oil stocks.
Global Production Landscape
Despite a 27% increase in global oil production in August, reaching 101.5 million barrels per day, oil prices have continued to rise. Notable increases in production have been observed in Canada, China and Iran, with OPEC companies supplying 33.52 million barrels per day in August, an increase of approximately 120,000 barrels per day from July. Iran, in particular, has boosted its production by around 100,000 barrels per day to approximately 3.14 million barrels in August.
The International Energy Agency (IEA) predicts that OPEC+ production cuts, led by Saudi Arabia, will cause a significant supply shortage in the fourth quarter of this year. However, in 2023, global oil supply is expected to peak at 101.6 million barrels per day, following an increase of 1.5 million barrels per day. Iran, which has adapted to U.S. sanctions, along with the United States and Brazil, are anticipated to lead this upward trend.
The outlook for China’s impact on the oil market is poised for a significant transformation. Projections indicate that oil demand growth in China is anticipated to contract to approximately 640,000 barrels per day by 2024, marking a noteworthy reduction from the average of 1.6 million barrels per day observed in 2023. This substantial decline underscores the diminishing influence of China in the long-term oil market dynamics. This transformation is largely ascribed to various economic challenges that have arisen within the country in recent times, reshaping its role in the global oil landscape.
In conclusion, the recent surge in oil prices can be attributed to a combination of factors, including production cuts by major oil producers, supply disruptions in Libya, and robust demand from China. While the market remains volatile, projections indicate that the upward trend may continue, albeit with some moderation in the coming years. These dynamics highlight the complex interplay of geopolitical, economic, and environmental factors in shaping the global oil market.