Why do international oil prices remain stable without any rise or fall?

Why do international oil prices remain stable without any rise or fall?

In the past two years, international crude oil prices have fluctuated within the range of $70 to $90 per barrel. The primary reasons underpinning the increase in oil prices encompass the escalation of driving demand, the disruption of oil and gas production caused by huOil Toolsrricanes, and the reduction of crude oil inventories. The key factors curbing oil prices comprise the nearness of demand growth to its peak, the continuous rise in OPEC oil production, and the proliferation of electric vehicles.In the past two years, the international oil price has essentially fluctuated within the range of $70 to $90 per barrel. Even if the geopolitical conflict in the Middle East persists and worsens, and the Red Sea crisis persists, along with factors such as the summer inventory reduction and the uncertainty of the US monetary policy outlook, the crude oil price trend will self-correct in a short period and be regulated by the invisible hand of the market to return to equilibrium. Let's commence with the analysis of why the oil price won't decline. Summer is traditionally the driving season, and gasoline demand is robust, typically driving up prices. The U.S. Travel Association forecasts that a record 71 million Americans will travel during the weekend of July 6, a figure even higher than that before the pandemic. Strong demand has emerged as the main factor contributing to the recent increase in international oil prices. Market analysts predict that oil prices could reach $90 per barrel this summer. Other seasonal elements include hurricanes. Hurricane Beryl is currently wreaking havoc in the southeastern Caribbean. While it is unlikely to pose an immediate threat to critical oil and gas infrastructure in the upper and lower U.S. Gulf of Mexico, highly active hurricane seasons typically cause partial disruptions to oil and gas production along the Gulf Coast. Simultaneously, a drawdown in inventories has also contributed to the rise in oil prices. The US Energy Information Administration estimates that crude oil inventories will have significantly decreased by 12.2 million barrels by the end of June, while fuel stocks have also declined. The American Petroleum Institute believes that oil prices will remain at two-month highs following a weekly inventory reduction of 9 million barrels. Of course, a significant reason why international oil prices have remained stable is to what extent will OPEC permit prices to rise before it lifts production cuts? Just as refiners are increasing production for the summer peak, crude exports from OPEC and Russia have declined, resulting in a tighter market than anticipated. The latest data indicates that global oil exports dropped by 1 million barrels per day (BPD) last month, with Saudi Arabia accounting for half of that decrease. Shipments from Gulf states and Iraq declined in part due to a prolonged heat wave in the Middle East depleting crude for the summer. This is why Wall Street venture capital seemingly has shifted gears and believes that higher oil prices will persist for a longer duration. Standard Chartered, a renowned "bull" representative, released a research report stating that London Brent crude oil futures are anticipated to exceed $90 per barrel this year. The reasoning is based on fundamentals where demand exceeds supply. The bank expects global oil supply to fall short in the third quarter of this year and extend into the fourth quarter, exerting further downward pressure on inventories. In the short term, price technical indicators and oil price levels are the most crucial bullish catalysts. Let's explore why international oil prices don't ascend. Firstly, constrained demand limits the upward movement of oil prices. In a recent report, the International Energy Agency projected that oil demand growth would peak within less than six years. It is nearly impossible to precisely predict the future of oil demand and supply relationships, but certain developments merit attention. For instance, the surging U.S. oil production has recently shown indications of deceleration, Asian oil import demand is still on the rise, and the energy mix of major economic powers will be dominated by non-hydrocarbon energy sources by 2045. These complications, combined with the lackluster outlook for the world economy, render it likely that demand growth will approach its peak within two to three years. Secondly, the alterations on the supply side are intriguing. Despite the commitment of OPEC+, a group consisting of OPEC members and non-OPEC producers, OPEC oil production continues to escalate. A market survey revealed that in June, crude oil production in the 12 OPEC-producing countries was 26.7 million barrels per day, an increase of 70,000 barrels compared to May. Nigeria's oil production is estimated to have risen by 50,000 barrels per day. Meanwhile, output from Iran, which is not bound by the OPEC+ agreement, reached 3.2 million barrels per day in June, the highest level in five years. Additionally, OPEC's second-largest producer, Iraq, reduced output by 50,000 barrels per day last month but continued to exceed its production quota by nearly 200,000 barrels per day. This raises the query, if the international oil price struggles to break through $90 per barrel for an extended period, is it possible for OPEC to intervene once again to cut production? In early June, OPEC+ extended the 3.66 million barrels per day (BPD) production cut agreement until the end of 2025 and also announced that it would prolong the 2.2 million BPD production cut agreement until the end of September 2024. Collectively, these cuts represent approximately 5 to 6 percent of global oil demand. Saudi Arabia and Russia, the two principal price influencers in the OPEC+ alliance, have been pursuing higher oil prices to assist in balancing their domestic budgets. Some experts believe that if Saudi Arabia desires to achieve fiscal equilibrium in 2024, it requires an oil price of $96.17 per barrel. The price of crude oil necessary for Russia to balance its finances could reach $115 per barrel. Currently, cutting production and raising prices is the sole approach, a strategy that clearly conflicts with the goals of major international oil consumers. Finally, there is the influence of the dissemination of electric vehicles. This is a complex topic. Although the short-term electric vehicle market has witnessed certain fluctuations, the long-term popularity of electric vehicles remains the general trend. The global adoption of electric vehicles has slowed this year. Tesla delivered less than expected in the second quarter; GM's electric car sales increased by 40%, but they are still operating at a loss. Consumer preferences are also changing. According to McKinsey's survey, nearly half of U.S. electric vehicle drivers are willing to switch back to internal combustion engines, while 29 percent in other developed countries have reversed their decisions regarding electric vehicles. Thus, the impact of the development of electric vehicles on oil demand is not as rapid as anticipated. The US Energy Information Administration forecasts that the increased utilization of electric vehicles, new clean energy technologies, and broader energy efficiency policies collectively outline a growth curve for oil demand that is expected to plateau in 2030.

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