- Oil heads for a second consecutive weekly gain as supply concerns offset demand fears
- August ’23 WTI gains 20c this morning to trade around $72/Bbl
- Equities trade lower, and the dollar weakened, making commodities priced in USD less expensive for holders of other currencies
- Saudi Arabia and Russia announced new output cuts this week, taking total OPEC+ reductions to around 5 MMBbl/d in August
- Yet, expectations of a likely U.S. Fed rate hike at the July 25 meeting, potentially weighing on oil demand, capped oil price gains
- Saudi Arabia Hikes Its Oil Prices as Supply Cuts are Extended (Bloomberg)
- Saudi hikes oil prices by 80c to northwest Europe, $1.00-$1.10 for the Mediterranean, and 20c for Asia's Arab Light oil, with Asia accounting for 60% of the kingdom’s market
- The nation has also extended its unilateral 1 MMBbl/d supply cut into August
- Following the price hikes and output cuts, some buyers in Asia and Europe plan to cut Saudi oil purchases, potentially tightening the physical market as they seek alternatives
- Deflation Hits US Shale Oil Fields, Easing Cost Pressure on Energy Companies (Bloomberg)
- US oil fields witness a substantial drop in production costs, with drill pipe prices and daily rig rates down by 50% and over 10%, respectively, and steel and diesel prices also declining
- 2Q2023 saw a 1% drop in US oil production costs, the first drop in three years, with forecasts of a 10% decrease next year, says Goldman Sachs
- Lower costs will likely drive companies to cut budgets, not boost drilling, as they aim to maintain output while trimming capital spending by 5%-10% next year, according to JP Morgan
- These cost savings are expected to help mitigate reduced free cash flow, with potential decreases in share buybacks and dividends and a renewed focus on cost reductions