Brent Crude Trading Above $94/Barrel Mark Amid Output Cuts, Experts See More Price Rise

Analysts have attributed these price surges to supply tightening by oil producers like Russia and Saudi Arabia and China cutting banks' cash reserve requirements to boost economic recovery

Crude oil prices have been surging for the past three consecutive weeks with the Brent Crude benchmark surpassing the $94 per barrel mark on Friday. Analysts have attributed these price surges to supply tightening by oil producers like Russia and Saudi Arabia and China cutting banks' cash reserve requirements by 25 basis points to boost its economic recovery. 

As per Oilprice.com, at 13.39 PM, Brent Crude was trading up 0.50 per cent at $94.17 per barrel while the West Taxes Intermediate Crude was trading up 0.57 per cent at $90.67 per barrel. 

Better-than-expected Chinese economic data with the expectation of more oil consumption pushed the prices on Friday, according to a Reuters report. The report noted data released by China's National Bureau on Friday which indicated a rise in oil refinery processing, reaching a record high of 64.69 million tonnes in August. The surge in refining output was driven by Chinese processors, who maintained high run rates to cater to the heightened summer travel demand and take advantage of improved profit margins for exporting to Asian markets. 

“Betting on oil is becoming a favourite trade on Wall Street. No one is doubting the OPEC+ (oil-producing nations) decision at the end of last month will keep the oil market very tight in the fourth quarter,” analyst Edward Moya at OANDA told Reuters. 

Production cuts by major producers Russia and Saudi Arabia are raising worries about supply. The International Energy Agency in a report last week said that expects Saudi Arabia’s and Russia’s extended oil output cut. 

"The extension of output cuts by Saudi Arabia and Russia through year-end will lock in a substantial market deficit through the fourth quarter of 2023. So far this year, OPEC+ output has fallen by 2 million barrels per day with overall losses tempered by sharply higher Iranian flows. Non-OPEC+ supply rose by 1.9 million barrels per day to a record 50.5 million barrels per day by August. World supply in 2023 will rise by 1.5 million barrels per day, with the US, Iran and Brazil top sources of growth," the IEA report said. 

In another report, the Organization of Petroleum Exporting Countries (OPEC) has said that the global oil market is expected to face a significant supply shortfall of over 3 million barrels per day in the next quarter, potentially the largest deficit in over a decade. This shortage is primarily due to Saudi Arabia extending its production cuts. Saudi Arabia has decided to reduce output by an additional 1 million barrels per day until the end of the year, despite tightening markets. 

World oil inventories are projected to experience a drop of approximately 3.3 million barrels per day in the next three months, according to forecasts from OPEC. OPEC's members have been producing an average of 27.4 million barrels per day in this quarter, which is approximately 1.8 million barrels less than what consumers are estimated to need.

If OPEC maintains its current output levels, the supply-demand gap is expected to nearly double in the final three months of the year. OPEC estimates that it will need to provide 30.7 million barrels per day in the fourth quarter to meet consumption.

This supply shortage reflects financial needs within OPEC, with Saudi Arabia potentially requiring oil prices to reach almost $100 a barrel to cover government spending and ambitious projects, according to a Bloomberg report.  

A report by Moneycontrol shows prices target forecasts by different Investors and analysts monitoring the Brent price trajectory. Saxo Bank forecasts a price of $94 per barrel, Probis Securities goes even higher with a target of $100 per barrel, Goldman Sachs sets a target of $105 per barrel, and Fat Profits anticipates prices to be in the $90 to $95 per barrel range. Although Wood Mackenzie predicts a pricing of $88 per barrel, Bank of America takes a more cautious approach, averaging $90 per barrel.