U.S. Crude Oil Rises, Trading Around $69 Per Barrel: A Closer Look

U.S. crude oil prices have been on the rise, with the WTI benchmark trading around $69 per barrel. This surge in prices can be attributed to a combination of factors, including OPEC+ production cuts, inventory drawdowns, and changes in global oil demand, particularly from China and India. Let's delve into these factors and explore their impact on the U.S. crude oil market.

OPEC+ production cuts have significantly contributed to the rise in U.S. crude oil prices. In 2023, OPEC+ agreed to extend and increase production cuts, reducing output by 2.2 million b/d through March 2024. This restraint, coupled with a 0.4 million b/d decrease in OPEC+ production from 37.1 million b/d in 2023 to 36.4 million b/d in 2024, has led to global stock draws of 810,000 b/d in 1Q24, driving U.S. crude oil prices up to around $69 per barrel.

Inventory drawdowns have also played a significant role in the recent increase in U.S. crude oil prices. According to the U.S. Energy Information Administration, inventory drawdowns have been occurring since July 2023, with an average drawdown of 0.4 million barrels per day (b/d) between July 2023 and the end of 2024. This is due to higher petroleum consumption and production cuts from OPEC members. The EIA forecasts that the Brent crude oil price will increase to the mid-$80 per barrel range by the end of 2024, up from the June 2023 average of $75 per barrel. The West Texas Intermediate crude oil price is expected to follow a similar path, maintaining a discount of $5 per barrel to Brent.

Changes in global oil demand, particularly from China and India, have also impacted U.S. crude oil prices. According to the U.S. Energy Information Administration (EIA), China accounted for around 20% of global oil demand gains in 2023 and 2024, compared to almost 70% in 2023. This deceleration in Chinese demand growth, coupled with a slowdown in India's oil consumption, has contributed to a more balanced global oil market, putting downward pressure on prices.

Geopolitical tensions and supply disruptions, such as those in the Middle East, have significantly influenced U.S. crude oil prices. In 2023, the IEA reported that escalating tensions between Israel and Iran fueled fears of a broader Middle East conflict and disruptions to Iranian exports, leading to a price spike in early October. Similarly, in 2024, the IEA highlighted the potential spillover to the strategic Strait of Hormuz waterway, keeping the market on tenterhooks. Libya's political quagmire and hurricanes in the U.S. Gulf Coast also contributed to price volatility. The U.S. Energy Information Administration (EIA) forecast higher crude oil prices in the second half of 2023 and into 2024 due to moderate but persistent inventory drawdowns, driven by OPEC+ production cuts and higher petroleum consumption.

In conclusion, the rise in U.S. crude oil prices to around $69 per barrel can be attributed to a combination of factors, including OPEC+ production cuts, inventory drawdowns, and changes in global oil demand. As the global oil market continues to evolve, investors should stay informed about these dynamics to make strategic investment decisions in the energy sector.