Oil prices soared to their highest point of the year this week, extending a rally that is now bringing a potential return to $100 a barrel into sharp focus.
Some analysts even believe that crude prices could hit this significant milestone before the end of the year.
On Friday afternoon in London, the international benchmark Brent crude futures traded slightly lower at $93.29 per barrel (0.4% decrease), while U.S. West Texas Intermediate (WTI) futures dipped by 0.4% to $89.83.
Both Brent and WTI settled at their peak levels for the year on Thursday. The oil contracts have experienced a substantial increase in value this month and are firmly on track to mark their third consecutive positive week.
This price rally is spurred by growing expectations of tighter supply after Saudi Arabia and Russia took measures to draw down global inventories and extend their oil output cuts through to the end of the year.
Saudi Arabia, a major player in OPEC, announced on September 5th that it would extend its 1 million barrel per day production cut until year-end. Russia, a key non-OPEC leader, pledged to reduce oil exports by 300,000 barrels per day until the end of the year. Both nations have committed to reviewing their voluntary cuts on a monthly basis.
Analysts at Bank of America now indicate a belief that oil prices could soon spike beyond triple digits.
“Should OPEC+ maintain the ongoing supply cuts through year-end against Asia’s positive demand backdrop, we now believe Brent prices could spike past $100/bbl before 2024,” mentioned analysts led by Francisco Blanch in a recent research note.
While concerns about China’s demand for oil have been a recurring topic, Tamas Varga of oil broker PVM sees a jump toward the $100 milestone as plausible. He cites production constraints from Saudi Arabia and Russia, upcoming refinery maintenance, the structural shortage of diesel in Europe, and a growing consensus that the current cycle of tightening will soon come to an end.
However, Varga highlighted that such a rally would also bring renewed inflationary pressure. This was reflected in this week’s U.S. inflation data and the rise in consumer spending, suggesting that interest rates may stay higher for a more extended period and could negatively impact both economic and oil demand growth.
The International Energy Agency warned on Wednesday that Saudi Arabia and Russia’s production constraints would likely result in a “substantial market deficit” through the fourth quarter.