Oil prices hit a 10-month high on Wednesday, defying expectations after a surprise build in US crude inventories. International benchmark Brent futures rose 39 cents to $92.45 a barrel, with a session high of $92.84 a barrel, the highest level since November. US West Texas Intermediate (WTI) crude gained 45 cents to $89.29, reaching a session high of $89.64 a barrel, also the highest since November.
One significant indicator of the market’s bullish sentiment is the widening spread between front-month Brent futures contracts and those for delivery six months later. This spread, currently at $4.90 a barrel, is the widest since November, highlighting tightening supply conditions.
Despite the unexpected data showing a build in US crude stocks, as well as rising petrol and distillate inventories, oil prices have continued to surge. US crude inventories increased by 4 million barrels in the last week, reaching a total of 420.6 million barrels.
The main drivers behind the rally in crude prices include:
- Supply Shortfall: Global oil markets are facing a supply shortfall of more than 3 million barrels per day (mbpd) in the next quarter, potentially the largest deficit in over a decade. This shortfall is primarily attributed to Saudi Arabia’s extended output cuts, as highlighted in the monthly oil report by the Organization of the Petroleum Exporting Countries (OPEC).
- Saudi Arabia’s Output Cuts: Saudi Arabia’s decision to restrict its oil production to boost prices and revenues amid soaring fuel demand has played a significant role in driving oil prices higher. Since late June, oil futures have surged by approximately 25 percent.
- Price Projections: Analysts at Bank of America anticipate that the ongoing supply cuts could propel Brent futures above the $100 per barrel threshold by the end of the year. This projection reflects the growing confidence in tight crude supply conditions and strong demand.
The resilience of oil prices in the face of bearish inventory data underscores the market’s focus on the broader supply-demand dynamics. With supply constraints persisting and robust global demand, oil markets continue to reflect optimism about the price outlook.
On the domestic front, crude oil futures on the Multi Commodity Exchange (MCX) traded slightly lower, with prices fluctuating between ₹7,332 and ₹7,431 per barrel. Despite the minor dip, the global rally in oil prices has been a key factor driving sentiment in the Indian oil market. Analysts and investors will continue to monitor international developments for further insights into the future direction of oil prices.
