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Oil Prices Gain 2% on Tightening Supply

Tom Kool

Tom Kool

Tom majored in International Business at Amsterdam’s Higher School of Economics, he is Oilprice.com's Head of Operations

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Brent Crude Hits 5-Month High On String Of Bullish News

Brent Crude Oil Prices

Oil prices rose on Monday morning, with Brent topping $46.50 in early trading, reaching its highest level in over 5 months.

Strong crude demand from China has been one of the most important drivers in the ongoing recovery in oil markets, and in contrast to what many analysts expected, Chinese demand continued to be remarkably robust in July and August.

A survey released this morning showed that China’s services sector grew at its fastest pace in over two and a half years in August. The so-called Non-Manufacturing PMI, together with the Manufacturing PMI are important sentiment gauges for the health of the economy.

Next to positive data from China, a weaker U.S. dollar remains an important factor for crude markets. Other key crude importers in Asia continue to be tempted to purchase oil as a weaker dollar results in lower import bills.

More bullish news for crude markets came from the UAE as Abu Dhabi National Oil Company (ADNOC) said that it plans to cut crude supplies by 30 percent in October. The decision to not ramp up exports after OPEC+ officially eased cuts in August shows the UAE’s commitment to the output cut deal.

Oil prices are set to close the month of August on a stronger note, but both Brent and WTI benchmarks could see headwinds in September as many analysts expect the recovery to slow down as a result of ongoing uncertainty over the coronavirus pandemic and the state of the global economy.

In the meantime, the global recovery in crude demand continues to materialize despite the fact that China’s crude imports in September are set to fall for the first time in five months as oil buyers struggle to find room to store record volumes of crude, data from Refinitiv and Vortexa revealed.

Wondering about the price differentials between global crude blends? Oilprice.com offers the world’s largest freely accessible crude pricing database. Check it out here.

By Tom Kool for Oilprice.com

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  • Mamdouh Salameh on August 31 2020 said:
    A bullish case can be made for oil prices based on China’s roaring crude oil imports which were 10% higher during the first half of 2020 than during the same period in 2019, the easing of the global lockdown, the impact of OPEC+ production cuts and the steep decline of an estimated 6.4 million barrels a day (mbd) of US production (mostly shale oil) so far this year accelerated by the steep decline of oil rigs from 744 a year ago to 172 now. The global oil market is starting to realize that there will be no comeback of US shale oil production soon or possibly ever. US oil production will therefore be struggling to maintain a production of even 6-7 mbd this year and the coming years.

    Moreover, the news that China’s services sector grew at its fastest pace in over two and a half years in August lends weight to the IMF’s projection that China’s economy will recover to pre-COVID-19 pandemic by the end of the year and will grow at 6.8% in 2021 compared with 6.1% in 2019.

    Based on the above, crude oil prices could be expected to hit $45-$50 a barrel in the second half of this year and touch $60 in early 2021.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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