The West Texas Intermediate (WTI) oil prices have been on the rise, climbing from a low of US$67.88 a barrel in July to the current price of around US$91. There are several factors contributing to this increase in prices, and the outlook for this commodity is worth considering.
Two-thirds of global oil production is consumed in transportation, with an additional 27% used for industrial heat or power generation. Gasoline accounts for the largest share of this consumption, followed by distillates, jet fuel, and other oil derivatives. Recent oil price moves have not been hampered by slower Chinese growth, a strong U.S. dollar, or recession fears.
The International Energy Agency (IEA) reports that global oil supply dropped by 910,000 barrels per day (bpd) in July, with output from the OPEC+ bloc falling by 1.2 million bpd. Non-OPEC+ volumes, including the United States, rose by 310,000 bpd. It is projected that global oil output will reach 101.5 million bpd in 2023. On the demand side, strong summer air travel, increased use in power generation, and rising Chinese petrochemical activity are driving world oil demand, which is expected to expand by 2.2 million bpd in 2023.
China’s rebound is an important factor in the rise of oil prices. China consumes 15% of global oil production annually and has experienced positive economic growth in recent quarters. The Chinese government has implemented measures to boost foreign direct investment and stimulate the economy, although challenges remain in the real estate sector and for young adults in the job market.
While there has been a push towards electric vehicles (EVs), gasoline vehicles still account for a significant portion of global oil consumption. The IEA forecasts that 14 million EVs will be sold in 2023, representing 18% of total car sales. Despite this shift, the impact on oil demand is relatively small compared to overall production.
Analysts at Bank of America, Goldman Sachs, and JP Morgan predict the possibility of crude oil prices exceeding US$100 a barrel due to supply cuts and sustained demand. The IEA, on the other hand, expects prices to ease to an average of US$87 a barrel by the second half of 2024 as global oil inventories rise.
In conclusion, the rise in WTI oil prices can be attributed to various factors such as supply cuts, increased demand, and a positive economic outlook. While the transition to EVs may have an impact on oil consumption, it is not yet significant enough to significantly affect prices. It will be important to monitor ongoing developments in the global oil market to assess the long-term outlook for this commodity.
Sources: International Energy Agency (IEA), Organization for Economic Co-operation and Development (OECD)