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.
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By Tom Kool for Oilprice.com
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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