In the world of commodities, oil is experiencing a robust rally this month, marking its strongest performance since the onset of the Ukraine conflict. This upward trend is fueled by a resurgent global demand narrative and strategic supply cutbacks by major producers, such as Saudi Arabia and Russia.
July has seen West Texas Intermediate (WTI) crude prices leap 16% to over $81 per barrel, while its counterpart, the Brent Crude benchmark, has seen a 13% rise, reaching just shy of $85 a barrel. This robust growth sets the stage for the most significant monthly gain for the commodity since January 2022.
What’s more, this month’s rally has effectively wiped out the year’s earlier losses. Both WTI and Brent Crude have now fallen less than 1% year-to-date. This reflects a newfound economic optimism, as concerns over a potential global recession started to recede in July.
Adding to this optimistic outlook, last week witnessed a couple of encouraging economic indicators. The International Monetary Fund (IMF) uplifted its global economic forecast, and the US reported a better-than-expected 2.4% GDP growth for Q2.
The tightening of oil supply by leading OPEC+ producers has further contributed to this price uptick. Earlier in July, Alexander Novak, Russia’s Deputy Prime Minister, disclosed Moscow’s plans to curtail its oil exports by about 500,000 barrels a day in the following month. Similarly, Saudi Arabia has signaled additional reductions in its crude output, having surprised markets earlier this year by slashing its exports by approximately 10% – equating to a million barrels a day.
“Saudi supply cuts have reintroduced deficits, and…the market has moved away from its growth pessimism,” shared a team of Goldman Sachs economists led by Daan Struyven in a recent client note.
Looking forward, the analysts predict a continued price increase, thanks to the “reduced recession risk and strong OPEC pricing power.” For investors, this resurgence in the oil market showcases the intriguing interplay of geopolitical tensions, global demand shifts, and strategic supply adjustments. As always, the economic landscape remains dynamic, offering compelling opportunities for those who keep a close eye on its ebbs and flows.