Saudi Arabia is likely to extend its voluntary 1 million-barrel oil supply cut for the third consecutive month into October amid uncertainty about supply, five Wall Street analysts have predicted. The initial cuts appear to have worked, with oil prices climbing about 15% in the past month to about $86 a barrel.
However, the gradual rise in oil prices as inventory tightened has reversed over the past week with traders worrying again about weak economic data coming from China as well as the upcoming Jackson Hole symposium. Current Brent prices of $82.71 is too low for Saudi Arabia since it needs $100-a-barrel crude to balance its books, giving it another incentive to keep supplies tight.
"We think Saudi Arabia will extend the cut in full at least through October. The kingdom is adopting a cautious approach after the weakness in oil markets over the first half of the year and will want to see global inventories significantly decline before starting to unwind the additional voluntary cuts," Richard Bronze, analyst at consultancy Energy Aspects, has told Reuters.
Meanwhile, brokerage PVM Oil's John Evans and Saxo Bank's Ole Hansen, have both predicted that a possible resumption of oil production from Iraq's Kurdistan region may prompt the Saudis to withhold additional supplies to the market for now.
Nevertheless, oil markets are expected to gradually tighten, which should boost prices as the months roll on. The International Energy Agency(IEA) in Paris has predicted an oil shortage of about 1.7 million barrels a day during the second half of the year.
Commodity experts at Standard Chartered have predicted that global oil markets will register a supply deficit of 2.81 million barrels per day in August; 2.43mb/d in September and more than 2mb/d in November and December. The analysts have also projected that global inventories will fall by 310mb by end-2023 and another 94mb in the first quarter of 2024 thus pushing oil prices higher. According to the experts, Brent prices will climb to $93/bbl in the fourth quarter.
By Alex Kimani for Oilprice.com
Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com.