The U.S. WTI Crude prices have escalated to the highest since August 2022, breaking the $95 per barrel resistance level. The international benchmark, Brent Crude, has hit a new record for 2023, beating $97 per barrel.
However, crude oil prices faced significant drops. Brent Crude decreased by nearly 12%, while WTI declined by almost 9%. The sudden crash was instigated by a report from the Energy Information Administration (EIA) citing weak U.S. gasoline demand, resulting in an abrupt shift in market sentiment. Tensions were exacerbated further by a bond market selloff, stimulating concerns about the future of the global economy and oil demand.
Despite the reduction, price levels remain high, potentially instigating economic challenges for industries closely tied to the energy sector.
However, before delving into the implications for related industries, a discussion regarding the reasons behind these unprecedented oil price levels is crucial.
According to the global energy watchdog, the International Energy Agency’s (IEA) Oil Market Report (OMR), global oil demand remains on track to rise by 2.2 million b/d year-over-year to 101.8 million b/d in 2023, fueled by rejuvenated Chinese consumption and increasing demands for jet fuel and petrochemical feedstocks.
According to Standard Chartered commodity analysts’ data, the U.S. oil demand demonstrates resilience and outpaces previous forecasts – bolstering the assertion of burgeoning gasoline and jet fuel demands that align with household behavior patterns. The EIA projects an annual boost in initial gasoline demand of 98 kb/d.
Goldman Sachs predicts the persistent demand to culminate in a larger-than-anticipated deficit of up to 1.8 million bpd during the latter half of 2023 and a 600,000 bpd deficit in 2024.
Other factors influencing supply and demand dynamics revolve around OPEC+ and Russia’s orchestrated production cuts and extensive crude draws, suggesting a probable surge in oil prices. Unexpected supply disruptions from Angola, Libya, and Nigeria might enhance oil prices. These elements point to a robustly bullish forecast for the remainder of the year.
Industry analysts project the growing trend in oil prices to persist. Norwegian oil and gas firm Equinor’s chief economist anticipates global crude oil prices could reach $100 a barrel.
Data from the U.S. Energy Information Administration (EIA) unveils crude stocks at the Cushing, Oklahoma storage hub, which is the delivery point for U.S. crude futures, plunged by 943,000 barrels in the fourth week of September to less than 22 million barrels, the lowest since July 2022. This incited an energy price surge.
Although the oil prices have eased, they remain well above and potentially detrimental to numerous businesses. Industries such as air travel and cruise operators, which heavily rely on fuel derived from oil, bear the burden of these soaring prices. Potential consequences include less consumer travel due to escalating airline ticket prices, resulting in repercussions for businesses within the tourism sector. Additionally, profits may decline significantly for chemical companies that utilize large quantities of oil for products such as paint.
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