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Oil inventory drops set stage for higher prices

31 July 2023 09:05 (UTC +04:00)

Oil inventories are beginning to fall in some regions as demand outpaces supply constrained by deep production cuts from OPEC leader Saudi Arabia, providing support for prices which are expected to rise in coming months, APA reports citing Reuters.

JP Morgan analysts said this month that oil inventories - which include crude and fuel products - now play a bigger role in determining oil prices than the U.S. dollar because Western sanctions on Russia have accelerated oil trading in other currencies.

"We expect stocks to draw relatively aggressively in July, and by the end of August, we should be through the stock builds that we saw in the first half of the year," said Christopher Haines, an analyst at Energy Aspects.

"We are on the cusp of supply tightness. Saudi cuts are essentially accelerating the timeline."

Both the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) expect oil demand to outpace supply this year, leading to overall inventory draws to the tune of 400,000 to 500,000 barrels per day (bpd), mostly accounted for by the second half of the year.

Although global oil inventories increased in May to their highest since September 2021, according to the IEA, driven by a substantial rise in non-OECD countries, analysts say signs of tightness are appearing, in the United States in particular.

Stock declines have been geographically uneven so far, with inventory falls in the United States and Europe offset by increases in China and Japan.