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Crude market expected to recover after steep dive

While crude may recover to $85 per barrel, Saudi Arabia needs it to be at $96 per barrel to cover budgeted spending, according to the IMF Alamy via Reuters
While crude may recover to $85 per barrel, Saudi Arabia needs it to be at $96 per barrel to cover budgeted spending, according to the IMF
  • Brent expected to return to $85
  • Opec+ ready to support prices
  • Interest rate cuts build optimism

Leading analysts are anticipating a recovery in the crude market after prices tumbled following a decision by Opec+ to unwind voluntary output cuts, deepening a downward trend over the last two months. 

Two reports published this week forecast Brent’s return to levels around $85-$86 per barrel in the coming weeks and for the rest of the year.

Brent flirted with $80 per barrel on Friday after a steep dive from $85 to nearly $76 per barrel in a week. The market has been reassured by Opec+ members’ readiness to do more to support prices if needed.

Prince Abdulaziz bin Salman, the Saudi energy minister, reiterated on Thursday that last weekend’s Opec agreement retains the option to pause or reverse production changes if necessary.

Saudi Arabia needs oil prices to be at $96/barrel, according to the International Monetary Fund, to cover budgeted spending. 

The European Central Bank’s decision to cut interest rates on Thursday has spurred hopes that the US Fed will follow suit and catalyse growth, which supports oil demand.

Analysts at BMI, formerly Fitch, expect the Fed to cut the primary interest rate to 4.75 percent from 5.5 percent currently by the end of the year, which will pressure the dollar to the downside.

BMI said that the US dollar could provide support to Brent.

“The ongoing US presidential race, elevated geopolitical risk and more challenging conditions for risky assets in the second half of the year could push the greenback to the upside, lifting oil,” BMI said.

BMI expects oil demand to increase at 1.9 million barrels per day in 2024 driven primarily by China and India.

Kpler, an analytics and data tracking company, also expects the market to tighten significantly in the coming weeks, leading to higher prices over the summer – although it said physical trading remained relatively weak due to high oil inventories, particularly in Europe and China.

“We believe that tighter balances will drive price recovery for Brent towards the mid-80s,” Kpler said in a note.

“The level of bearishness due to the latest Opec+ meeting may be overstated.”

Kpler said that crude and condensate balances indicate an average deficit of 2.6 million barrels per day between June and September due to increased demand for petroleum products, especially gasoline.

Higher domestic consumption across Opec+ members will also limit available volumes of crude for export, Kpler said. 

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