Crude oil market 'screaming' tightness as demand continues to top supply

Data analyzing in commodities energy market: the charts and quotes on display. US WTI crude oil price analysis. Stunning price drop for the last 20 years.

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U.S. crude oil closed the week below $100/bbl for the first time since April, pushed down by recession fears, a stronger dollar and mounting COVID-19 cases in China, but continued physical market tightness suggests the drop may be overblown.

WTI futures (CL1:COM) ended the week on an uptick as President Biden's meeting with Saudi leaders did not result in an immediate pledge for a production hike, but for the week the benchmark fell 6.9% to $95.78/bbl, at one point wiping out all gains since Russia invaded Ukraine; Brent crude (CO1:COM) fell 5.5% this week at $101.16/bbl.

Goldman Sachs said this week that the physical oil market (NYSEARCA:USO) is still "screaming that it's very, very tight," with physical Brent crude trading at a record premium over futures showing that tightness persists at current price levels.

Any extra supplies that OPEC might provide would be a mere "transient" solution that fails to resolve the overriding issue of under-investment across energy markets, the bank said.

OPEC's first oil market outlook for 2023 forecasts global oil demand growth to exceed the increase in supplies by 1M bbl/day next year, with demand expanding by 2.7M bbl/day and supplies rising by 1.7M bbl/day.

To balance supply and demand, OPEC would need to provide an average of 30.1M bbl/day in 2023, which is 1.38M more than OPEC's 13 member nations pumped in June.

OPEC has been trying to revive production halted during the pandemic, but the group is pumping well below its collective target because capacity from Angola, Nigeria and others has eroded due to insufficient investment and operational problems, and Libya's production has plunged because of political unrest.

Because of the supply shortfall, fuel inventories in industrialized nations dropped to 312M barrels below the five-year average in May.

And Fatih Birol, the head of the International Energy Agency, said the world "might not have seen the worst" of the energy supply crunch, which "may have serious implications for the global economy."

Energy (NYSEARCA:XLE) ranked at the bottom of this week's S&P sector standings, -3.3%.

Top 3 gainers in energy and natural resources during the past 5 days: (CEIX) +13.8%, (SJT) +10.9%, (NAT) +10.8%.

Top 10 decliners in energy and natural resources during the past 5 days: (BORR) -26%, (BPT) -22.8%, (PLUG) -21.8%, (EGY) -20.8%, (EXTN) -20.6%, (PEGY) -19.4%, (FCEL) -19.2%, (RIG) -19.1%, (HASI) -18.3%, (FLNC) -17.3%.

Source: Barchart.com

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