Oil prices rallied over the weekend and are on track to return to the $85 area.
USOIL: weekly chart
Crude oil rallied from $79 to $81.36 last week and is poised for further gains to the $84–85 level.
The International Energy Agency (IEA) said on Friday that OPEC is sticking to its policy of cutting crude oil production. In April, OPEC and its allies, including Russia, pledged to cut output by more than 1.6 million barrels by the end of the year to stabilise oil prices. OPEC leaders said this year that $80 a barrel was the bottom line of their economic plans.
Weakness in crude oil led Saudi Arabia to announce further production cuts in July and extend OPEC’s target until the end of 2024. In its monthly report, the IEA said production cuts and rising demand had led to a sharp drawdown in reserves.
If OPEC continues to maintain current production targets, oil inventories could fall by 2.2 million bpd in the third quarter and 1.2 million bpd in the fourth quarter, which “could push prices further,” the energy agency wrote.
Despite the weaker stock market and economic outlook, crude oil is still showing strength, which is a good sign for the rebound in stocks and risk assets. Oil prices also shrugged off a stronger dollar, which has risen for five straight weeks. That marks the longest winning streak in fifteen months.
There are also rumours that China will extend recent rate cuts or inject liquidity into the market after the real estate sector has come under pressure recently.