The price of West Texas Intermediate (WTI) oil has seen a significant increase, rising from US$67.88 per barrel in July to a current price of around US$91. This increase in prices is due to several factors that are worth considering.
Oil production is mainly consumed in the transportation sector, accounting for two-thirds of global consumption, and another 27% is used for industrial heat or power generation. Gasoline accounts for the majority of this consumption, followed by distillates, jet fuel and other petroleum products. Despite China’s slower economic growth, the strength of the US dollar and recession fears, recent oil price movements have not been affected.
According to the International Energy Agency (IEA), global oil supply decreased by 910,000 barrels per day (bpd) in July, with a 1.2 million bpd drop in production from the OPEC+ bloc. On the other hand, non-OPEC+ volumes, including the United States, increased by 310,000 bpd. Global oil production is projected to reach 101.5 million bpd in 2023. On the demand side, increased summer air travel, increased use in power generation and growing petrochemical activity in China are driving the Global oil demand is expected to expand by 2.2 million bpd in 2023.
China’s rebound is a major factor in rising oil prices. China consumes 15% of the world’s oil production annually and has experienced positive economic growth in recent quarters. Despite the challenges facing the real estate sector and young adults in the labor market, the Chinese government has implemented measures to boost foreign direct investment and stimulate the economy.
Despite the push toward electric vehicles (EVs), gasoline vehicles still account for a significant portion of global oil consumption. According to the IEA, 14 million EVs are expected to be sold in 2023, representing 18% of total car sales. Despite this change, the impact on oil demand is relatively small compared to total production.
Analysts at Bank of America, Goldman Sachs and JP Morgan predict the possibility of crude oil prices exceeding $100 per barrel due to production cuts and sustained demand. On the other hand, the IEA expects prices to stabilize at an average of US$87 per barrel by the second half of 2024 as global oil inventories increase.
In conclusion, the rise in WTI oil prices can be attributed to various factors such as supply cuts, increased demand, and a positive economic outlook. While the transition to electric vehicles may have an impact on oil consumption, it is not yet significant enough to affect prices significantly. It will be important to monitor developments in the global oil market to assess the long-term prospects for this commodity.
Sources: International Energy Agency (IEA), Organization for Economic Cooperation and Development (OECD)
