Brent crude prices were testing their highs this week at the psychological level of $75 per barrel. The strong upward trend is still present despite recent corrections and there could be many reasons for that. The pandemic is gradually fading, causing business activity to recover worldwide, and consequently the demand for “black gold” to increase.
According to the recent forecast of the International Energy Agency the global demand for crude oil could top 96.7 million barrels per day in 2021, which is 5.7 million bpd above the 2020 level, when it plunged by 8.7 million bpd compared to 2019.
Crude prices are also supported by massive stimulus measures by the world’s major central banks, and the U.S. Federal Reserve (Fed) in particular. Loose monetary policies by global monetary policymakers makes loans and investments more affordable worldwide, and also seem to create a greater appetite for risky assets, including oil. Such policies are also pressuring the U.S. Dollar, which is the currency in which crude prices are denominated. The driving season in the United States and the increasing demand for fuel in the agricultural sector seem to also be boosting crude prices.
So, on one hand there is a rising demand for fuel but on the other, OPEC+ made an agreement to limit crude production. The Brent crude price of $75 per barrel is not only above pandemic levels, but it is also the highest since the spring of 2019, while the demand for crude is significantly less than it was then.
A correction of Brent crude prices to $72-73 per barrel was also seen after the Fed’s unexpected statement about a possible earlier than expected interest rates hike in 2023. This statement came out at a time when the market believed that crude was a little bit overbought. Considering this, it may hardly be expected that crude prices may rally in the near future. Moreover, OPEC+ is considering increasing crude production. So far the cartel and its allies agreed to lift oil production by 350,000 and by 440,000 barrels per day in June and July respectively. In addition, Saudi Arabia is expected to return some 350,000 barrels per day in June and 400,000 barrels per day in July.
The next OPEC+ meeting is scheduled for July 1, and it is quite possible crude production may be increased again since crude prices are still on the upside trend and are above the expectations of OPEC+. And that could make sense as other crude producers like the United States are not bound by OPEC+ obligations and are taking advantage of rising crude prices by boosting production. So, a possible trading range of $70 to $75 per barrel of Brent crude might be a narrative for the coming months.
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