WTI Oil May Test Yearly Highs Soon
- WTI oil has recently managed to climb above the psychologically important $80 level.
- While Chinese economy underperformed in the first half of this year, production cuts from key supplies provided sufficient support to oil prices.
- The oil market fundamentals remain strong, and WTI oil has a good chance to test yearly highs soon.
WTI oil gained upside momentum in early July and moved towards multi-month highs above the $80 level. Production cuts from Saudi Arabia and Russia were among the key drivers for the move, while rising demand for energy provided additional support. As a result, WTI oil gained more than 20% from its June lows.
In previous months, WTI oil was trading near the $70 level as traders reacted to the weakness of the Chinese economy. The situation in China is the biggest disappointment for oil bulls this year as the country’s economy is not growing as fast as expected.
Some analysts point to the weakness of domestic demand as Chinese consumers remain cautious. However, it looks that the key reason is the weakness of the European economy, which is one of China’s main customers.
China has recently announced stimulus measures that are designed to boost domestic consumption. The impact of these measures will be visible in the upcoming months, and China’s demand for energy should increase.
Russia’s Urals oil, which was hit hard by the oil price cap due to its reliance on maritime transportation, has surpassed the $60 level in July. Consumers are willing to use alternative transportation routes with the help of little-known traders and insurers as they need more oil. Meanwhile, Saudi Arabia and Russia have extended their voluntary production cuts, so the market will get tighter day by day.
A combination of rising demand, China’s stimulus measures, and voluntary production cuts from key supplies should provide enough support to oil markets in the upcoming weeks and months. While pullbacks are inevitable, it looks that WTI oil is ready to the $85 level. Any purchases for the Strategic Petroleum Reserve, which is at multi-decade lows, will likely push WTI oil above the $90 level.
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