In recent weeks, we have observed significant declines in oil inventories in the United States. This is due to limited growth in production and relatively low imports. Interestingly, demand in the United States does not look very good, so the main factor causing the price rally in the oil market is supply.
Supply has been limited for many months, but the United States has been managing this problem by releasing strategic reserves. Since 2022, reserves have dropped by almost 250 million barrels and are at their lowest since the early '80s. In the first half of 2023 alone, reserves fell by 26 million barrels. At this point, reserves are at such low levels that there is no possibility of using them without risking a lack of sufficient raw materials. Of course, oil is not as big a problem as it was in the '70s and '80s when the United States was cut off from large supplies from Arab countries, but still, production in the USA is not enough to meet all demand.
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Open account Try demo Download mobile app Download mobile appOne of the larger oil suppliers to the USA was Saudi Arabia. However, the two countries are currently not very closely aligned, so Saudi Arabia has no problem cutting supplies to the USA. Exports from Saudi Arabia are currently at their lowest since 2021 but are simultaneously one of the lowest levels in recent decades.
Exports of oil from Saudi Arabia are at the lowest levels in many years. Source: Bloomberg Finance LP
Of course, the USA is reducing sanctions on Iran and Venezuela, but this may not cover all demand. Therefore, commercial inventories will continue to decline. Just recently, we pointed out in our analyses that inventories could fall by about 60 million barrels by the end of the year in the USA. However, last week inventories fell by over 10 million barrels! As you can see, the situation may be even more tense than we think. How long can high prices last? Probably until the end of the year, when Saudi Aramco is expected to decide to sell shares for an amount of up to 50 billion USD. Until that time, the price of oil must be high, or the company must sell a lot.
Brent crude is already knocking on the door of 90 USD per barrel, and the 100 USD level seems very far off. However, if there is no significant slowdown worldwide, and China strongly rebounds, then 100 USD may become a more likely scenario.
Comparative inventories in the USA are starting to decline significantly. This may mean that they will soon be priced at levels of 90-95 USD per barrel! Source: Bloomberg Finance LP, XTB
Brent crude has had its best week in a long time. The 90 USD level is within reach, and at 85 USD, we can see strong support. Source: xStation5
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