Oil jumps again on dollar crash, OPEC grandstanding of demand

Investing.com -- With U.S. inflation data and rate hike concerns baked into the cake, OPEC did a grandstanding Thursday on its demand forecast for the current year and next to show all was hunky and dory with the oil market. 

The result was another rally in both U.S. crude and global benchmark Brent pricing, even as some traders deliberated about other matters that barely make it into the conversation on oil these days: creeping production from Iran and Iraq, while headlines about proclaimed output cuts by the Saudis and Russians continue to saturate the airwaves.

New York-based West Texas Intermediate, or WTI, crude settled up $1.14, or 1.5%, at $76.89 per barrel. The U.S. crude benchmark is up 4% on the week, extending last week’s 4.6% rally and the prior week’s run-up of 2.1%.

London-based Brent finished the New York trading session up $1.25, or 1.6%, at $81.36, after a three-month high at $81.42. For the week, Brent is up 3.7% after last week’s 4.8% rally and the prior week’s 1.4% gain.

The rally is “primarily on the back of the extension to the Saudi one-million-barrel cut to the end of August, alongside Russia's 500,000 barrel export reduction,” said Craig Erlam, analyst at online trading platform OANDA. 

“Some profit-taking at these levels wouldn't be hugely surprising and may have come sooner if not for the U.S. CPI data.”

The softest U.S. inflation growth in more than two years reflected by Wednesday's Consumer Price Index report for June has eased much of risk markets’ fears about an aggressive Federal Reserve and hammered the dollar to 15-month lows, delivering a boon to oil and other commodities priced in the currency.

Notwithstanding that, China’s weaker-than-expected economy since the start of the year remains a concern for those watching buying from the world’s top importer. 

OPEC’s latest monthly report made no explicit forecasts on Chinese demand, except to say that “continued improvements in China [are] expected to boost consumption of oil”. 

Customs data from Beijing, meanwhile, showed a different story: exports plunged 12.4% year-on-year in June — the most in three years — as higher interest rates worldwide dampened demand for Chinese goods. 

“OPEC’s forecasts on demand are hunky-dory, yet the Saudis who lead OPEC are doubling down on production cuts,” said John Kilduff, partner at New York energy hedge fund Again Capital. “One can understand their strategy of wanting to ensure no oversupply. But if they’re really confident that demand is going to be that great, shouldn’t they be adding barrels or at least keeping production even?”

Reuters observed the same, saying “OPEC is pumping far less” while claiming that demand would be “solid”.

Vienna-based OPEC, or the Organization of the Petroleum Exporting Countries, said it expects world oil demand to rise by 2.25M barrels per day in 2024, a rise of 2.2%, compared with growth of 2.44M bpd in 2023.

Reuters noted that OPEC's demand growth forecast for 2024 was double that of the International Energy Agency, another closely watched forecaster which updated its outlook earlier on Thursday.

OPEC’s demand forecasts on China have no backing

The OPEC report also showed that the group’s production rose by 91,000 barrels daily to 28.19M bpd in June, led by Iran and Iraq. Iran is one of the OPEC members exempt from cutting output.

OPEC said the United States is expected to make the biggest contribution to non-OPEC supply expansion next year although it sees growth in U.S. tight oil, another term for shale, slowing to 500,000 bpd in 2024 from 730,000 in 2023.

“None of these forecasts have any backing or make any sense,” Kilduff said. “Chinese economic growth has been as underwhelming as anything while U.S. oil production has been continuously higher since the worst of the pandemic, with no signs of a slowdown coming. It’s classic OPEC: Keep the market in perpetual fear of tight supply while under-delivering on pledged cuts to maximize price impact.”