Oil prices hit record high in nearly three years
Oil prices oil have recorded the highest increase in 33 months (nearly three years), as the Organisation of the Petroleum Exporting Countries (OPEC) Reference Basket (ORB) averaged $73.53/b in July 2021.
According to the OPEC monthly report released on Thursday, August 12, the ORB, which is the weighted average of prices for petroleum blends produced by OPEC members, and used as the benchmark for crude oil prices, rose to $1.64, the highest since October 2018.
The $1.64 increase in oil prices on the world market represents a 2.3% month-on-month (m-o-m) rise.
The report specifically stated that, “The OPEC Reference Basket averaged $73.53/b in July, representing an increase of $1.64, or 2.3%, m-o-m, the highest level since October 2018. Year-to-date, the ORB was up $25.43, or 63.8%, compared with the same period last year, to average $65.27/b.”
The increase was attributed to the rise in the m-o-m crude oil spot prices in July 2021, as physical market fundamentals and declining oil inventories continued to support oil prices.
It was observed that crude oil futures prices extended gains in July, sustained by the outlook for strong oil market fundamentals.
Further details provided by the report noted that the Intercontinental Exchange (ICE) Brent front month increased by 88 cent, which is 1.2% m-o-m to average $74.29/b in July, while the New York Mercantile Exchange (NYMEX)-West Texas Intermediate (WTI) gained $1.08, thus, 1.5% m-o-m to average $72.43/b.
Consequently, the Brent/WTI futures spread narrowed further in July by 20 cent to $1.86/b, its narrowest since October 2020.
“The market structure of all three major oil benchmarks remained in steep backwardation in July, as the oil market outlook remained robust and the market rebalancing process continued, amid a further decline in OECD oil stocks,” OPEC reported.
It however observed that hedge funds and other money managers sharply reduced their net long positions in July, particularly in WTI, after a sell-off was seen in US equity markets and concerns heightened about the rapid spread of the Delta variant.
Meanwhile, the International Energy Agency (IEA) has warned that new mobility restrictions in Asia to fight the Delta variant of the COVID-19 would slow down global oil demand growth in the second half of 2021.
According to the agency, the rising demand for oil abruptly reversed course in July and is set to proceed more slowly for the rest of the year due to the spread of the delta variant.
“Growth for the second half of 2021 has been downgraded more sharply, as new Covid-19 restrictions imposed in several major oil-consuming countries, particularly in Asia, look set to reduce mobility and oil use,” the IEA Oil Market Report published on Thursday, August 12 stated.
Adding that it realised that growth abruptly reversed course in July, and the outlook for the remaining months of 2021 has been downgraded due to the worsening progression of the pandemic and revisions to historical data.
Similarly, the OPEC report indicated that world oil demand growth expectations for 2021 remained unchanged from the previous month’s assessment, with demand still estimated to increase by around 6.0 mb/d to average 96.6 mb/d.
While confident that the demand would recover robustly from the pandemic OPEC maintained its prediction, that demand would grow by 5.95 million bpd or 6.6% in 2021.
Nonetheless, “some revisions were taken into account in quarter one of 2021, due to slower-than-anticipated demand in Organisation for Economic Co-operation and Development (OECD) Americas, offset by better-than-expected data from non-OECD countries in the second quarter of 2021,” the report stated.