$85 is only the start of the oil-price rally

The dynamics of oil production within OPEC member countries have seen a significant shift, reaching levels not observed since either 2020 or 2021. This decline is attributed to a combination of deliberate and involuntary factors. Saudi Arabia, a key player in the oil market, has voluntarily reduced its oil production. Meanwhile, countries like Nigeria, Angola, and Libya have experienced involuntary decreases in their oil output. These changes in production have had a notable impact on global oil prices, sparking conversations about the potential timing for Saudi Arabia to ease its production cuts.

Saudi Arabia's economy is deeply intertwined with the oil industry. The nation requires higher oil prices to effectively support its diversification efforts, moving away from an oil-dependent economy. The situation is further complicated by Goldman Sachs' recent report of record oil demand in July, which led to a deficit in the second quarter. This data seems to justify Saudi Arabia's decision to keep its production cuts in place.

There are emerging speculations that Saudi Arabia might be discreetly selling oil from fields shared with Kuwait. This strategy would allow the country to capitalize on the current high prices without officially relaxing its production cuts, thus maintaining a semblance of market stability.

On another front, oil prices are receiving an additional boost from market activities. Traders are covering their short positions in oil, and a favorable report from the American Petroleum Institute has further buoyed prices. This market sentiment is leading analysts to believe that oil prices might soon reach a level that Saudi Arabia deems desirable. If this occurs, it could lead to a gradual easing of the production cuts.

Looking forward, there is a growing anticipation among experts that Brent oil prices could soar to $100 before the year's end. This prediction is grounded in the ongoing production cuts and a decline in oil inventories. However, this optimistic outlook is not without its caveats. Potential negative growth in the GDPs of major economies like the U.S. or China could act as a brake on the current upward trajectory of oil prices, introducing uncertainty into an already complex global oil market.

Source: OilPrices.com "$85 Is Just The Beginning Of The Oil Rally”