Comment by Eugen Weinberg, Head of Commodity Analysis at Commerzbank
The price of oil has risen about 20 percent since the beginning of August and again surpassed the psychological mark of $ 50 per barrel, which has also boosted the price of diesel. The crucial aspect for the rise in oil prices was an improvement of the general mood on the oil market. The market is expecting an agreement on maximum production limits at the meeting of OPEC and non-OPEC producers in Algeria in September. The demand side was also rather resilient recently, although 1.6 million cars – amounting to an increase of 26.5 percent compared to previous year – were sold in China in July. But the market currently seems to be “deaf in one ear” and is not taking into account the fundamental factors that speak against the rise in prices.
Firstly, exploration activity has risen sharply in the US thanks to higher oil prices, and the number of active US oil drilling operations has increased by 30 percent to about 400 in the past three months. Secondly, the actual demand for oil in China does not seem to have been that strong recently. Because in July alone, China exported 2.5 million tons of diesel and petrol, which is as much as never before. In particular, the oversupply on the global diesel market seems to be quite high given the currently moderate commercial and industrial activities.
That is why we believe the price increase is exaggerated and expect a renewed decline in prices before they stabilize again and the oil price rises to a sustainable level above $ 50 per barrel at the end of the year. We believe that the chances of coming to an agreement at the meeting in September are rather low. In addition, it might even be counterproductive for OPEC, as competitors like Russia and the US would expand their production and revenues. Although we certainly see significantly higher oil prices in the long term, the price of crude oil and thus the price of diesel are expected to fall within the next three months.