For the Quarter Ending September 2023
Crude oil prices rebounded sharply in the third quarter of 2023 after experiencing a decline in the second quarter amid reduced inventory levels in the US reserves. The WTI Crude oil prices were rising due to a combination of factors including peak driving season in North America during July as the demand for refined oil products was high from the downstream industries. As a ripple effect, the constant decline in the oil inventories further put upward pressure on the Crude oil prices. As per the data from the Energy Information Administration (EIA) shows that oil inventories declined by 63.9 mb in August, led by a massive 102.3 mb draw in Crude oil stocks. However, the continuous surge in the Federal Reserve's interest rate tends to slow economic growth, but the rebound in economic data in August depicted by The producer price index (PPI) of final demand in August increased by 0.7% month on month suggested that US economy was still resilient to drive the strong demand for Crude oil. Overall, the outlook for Crude oil prices in the USA was bullish throughout the quarter.
After witnessing the downtrend in the second quarter, Crude oil prices experienced exponential growth throughout the third quarter of 2023 amid supply tightening in the global market. The tightening of production policies by OPEC and Saudi Arabia has reduced the global supply of Crude oil, which was driving up prices during July. Moreover, the recovering demand for Crude oil in China sharpened the global market as China is the world's second-largest oil consumer, and its demand during the peak travel season boosted the demand for downstream gasoline and aviation fuel. Furthermore, the sudden surge of Crude oil demand from China boosted the oil prices globally. Similarly, on the supply side, total Russian oil imports to India fell by 23.4% month-on-month in August to 1.47 million barrels per day (bpd) which is the lowest decline during this year. Interestingly, to conquer the high prices of Crude oil, the Indian Ministry implemented a Windfall tax on the exporting products along with the increase in export tax. In line, shipments of Crude oil from Saudi Arabia to India fell over 33 % during September which further supported the bullish price trend.
During the third quarter, the overall Crude oil prices in the European market remained bullish compared to the previous quarter. Brent benchmark has touched the mark of 90 USD/barrel during September which was a record level highest mark ever since the pandemic. Despite the rising interest rates by the European Central Bank, the European market has generally digested the expectations of the Federal Reserve during this timeframe. During July, the price of Brent Crude oil rose above $80 per barrel, while the discounts paid by buyers of Russia's main Urals export blend have narrowed to around $20 as the increased demand for Russian oil from China and India, and a decrease in supply of Russian Crude oil due to sanctions of war affected the Brent Crude oil to rise exponentially throughout the period. Furthermore, Crude oil prices were boosted by falling refined product stocks such as gasoline, diesel, and jet fuel in Europe and a drop in the 2-year U.S. treasury yields. All the above-mentioned factors have played a pivotal role in the recent rise in oil prices.
Throughout the third quarter, global Crude oil values experienced an unexpected surge in the market amid the announcement of a production cut by Saudi Arabia, the world’s largest oil exporter. The voluntary cutting by OPEC+ production by 1 million barrels per day (bpd) in July and August, on top of broad reductions by OPEC and its allies limit the Crude oil supply which has supported oil prices. Furthermore, Russia's export restrictions on its oil exports have further tightened the supply of Crude oil. Talking about the demand side, the improving refining margins in Asia, particularly for middle distillates has increased the demand for Saudi Arabia's Crude oil, which contains high sulfur content. As a result of these factors, Saudi Arabia announced to raise its price for Arab Light Crude for sale to Asian refiners in September. Alongside, Saudi Arabia has extended its voluntary production cut of 1 million barrels per day (bpd) until the end of September which further hampered the supply chain activities within the international market.
For the Quarter Ending June 2023
During the second quarter, the overall Crude oil market in the US contracted as compared to the first quarter, which was highly influenced by the volatile market sentiment and changing demand. During the first two weeks of April, Crude oil prices had increased by 3.38% due to induced market sentiments despite having announcement of production cuts by OPEC+ countries. As per the data, the Industrial Production Total Index in the US rose from 102.6 (March) to 103.1 (April) amid economic activities to improve. Afterward, a tight labor market and raised FD rate hampered the demand for Crude oil to remain low throughout the quarter, due to which overall prices decreased after witnessing multiple fluctuations. A significant drop of 11.3% was observed from April to June. The increasing concern over recession in the US has negatively impacted oil prices. A temporary rise in prices was observed in May due to the wildfire in Canada, followed by the rising inflation rate, and the US dept ceiling deal prompted the prices to be volatile.
During the second quarter, the overall crude oil trend remained volatile in the Chinese market. The sluggish economic growth of China and the US have impacted fluctuating Crude oil prices. As per the National Bureau of Statistics (NBS) data, the value-added industry growth rate of China rose from 3.9% (March) to 5.6% (April). On a monthly basis, prices showcased an overall increment during April, despite having high inventories by OPEC+ countries. However, OPEC+ indicated a production cut in order to protect margins which hampered the price trend to be low during May in China. Additionally, slow economic growth with deepening concerns of recession in the US has affected the demand fundamentals of crude oil in China. Moreover, the demand in the Chinese market remained low due to the spread of covid infection amid dullness in market activity. China has announced an interest rate cut, an attempt to stimulate the economy and trading growth, which boosted demand for Crude oil in June.
During the second quarter, the overall Crude oil in the European market remained bearish compared to the previous quarter. The expected hike in interest rates during mid-April boosted the dollar index. A stronger dollar makes oil more expensive for other currencies, affecting the prices to be temporarily inclined. Economic uncertainties and high inflation influenced the prices to continuously fluctuate and settle at USD 76.37 per tonne for Brent Crude oil at the end of May. Despite Russia invading Ukraine, Russia managed to sail its cargo more to the Asian market, affecting the May price trend. Moreover, investors sell their assets, such as commodities, out of fear of the banking crisis and global recession, contributing to oil prices' downfall. Additionally, the demand for crude oil remained low, which propelled the prices to fluctuate in a narrow range. However, market prices of Crude Oil have rebounded globally during June after an insurrection by Russian mercenaries. The growing geopolitical tension and political instability hampered the overall pricing trend of crude oil during H2 of June 2023.
During the second quarter, the overall price trend of crude oil fluctuated due to several announcements made by Saudi Arabia, one of the largest exporters of crude oil globally. The average Brent crude oil price in Saudi Arabia for the second quarter of 2023 was 73.6 USD per barrel. In April, Saudi Arabia announced to cut down crude oil production by 50000 barrels per day, followed by other OPEC+ members, including United Arab Emirates, Kuwait, Iraq, and Oman, within the same time frame. Crude oil surges as Saudi Arabia extends voluntary cuts in production by another one million barrels per day effective from July to cover its importing bills and government spending. Effectively, the production of Saudi Arabia went down to around 9 mbpd in the quarter ending June compared with 10.5 mbpd in April. Meanwhile United Arab has increased its output, hampering the prices inclined. However, throughout the second quarter, the global economic recovery led to weaker demand for oil, which affected the prices to be volatile.
In North America, crude oil demand remained low throughout the quarter due to the underwhelming outlook on economic activities, despite no significant disturbances in the supply chain. According to the data, WTI crude oil prices declined from USD 79/barrel to USD 74/barrel within the first quarter of 2023. World oil supply improved by 830,000 barrels per day in February, primarily driven by improved demand from the US and Canada after winter storms and other disturbances. However, prices kept their downtrend as Asian players opted for Russian crude, which was available at cheaper rates.
During Q1 2023, Asian players started opting for Russian crude oil to gain profits, as it was available at cheaper rates. China's slow recovery remained a matter of concern for the global crude oil market, as it was lower than expected and did not allow the price of crude oil to rise globally. Additionally, major Asian countries like India started importing crude oil from Russia, even after the ban and sanctions imposed by the West and the USA. Moreover, the global crude oil inventory level surged due to unexpectedly dull demand in the international market amidst the rise in inventory levels.
The global economic slowdown kept the European market at its low for the entire quarter as a repercussion of the Russia-Ukraine war. According to the data, the European market kept on suffering from high inflation and slow economic activities in the region. Despite the multiple sanctions and bans on Russia, including the price cap on Russian crude and natural gas, Russia managed to sail its cargo to the Asian market. Furthermore, the UK remained the most affected country by inflation and slow economic activities. However, some experts believe that Europe may not go into recession this year.