The Brent benchmark gained 0.6pc on Wednesday in London, after having advanced by 6.4pc in the previous seven trading days, to $56.37/bbl. The rising geopolitical tension in the Middle East contributed to the initial lift in crude prices last week, whilst Saudi Arabia's plans to extend their oil extraction cap into the second half of this year has reassured traders of the sustainability and resilience of the oil market.
"OPEC just has to have patience because the markets are rebalancing," Abhishek Deshpande of the London-based Natixis SA said.
The Saudis have been attempting to boost oil prices since the first oil production cuts were negotiated in November 2016, but supply side has been losing its dominant position in the oil market since Brexit and Donald Trump's election in the US paved way to a rise in factory output costs, allowing for increases in oil refining. US oil supplies dropped last week, whilst broader international crude stockpiles declined in February.
"It is increasingly looking like an extension to productions cuts is required to prevent a surplus forming in oil markets," Vivek Dhar of Commonwealth Bank of Australia said.
US oil inventories declined by 1.3 mln bbl last week, according to the data from the American Petroleum Institute. Still, according to the Energy Information Administration (EIA) data, US oil inventories reached their record highest of 535.5 mln bbl in April. The EIA are also expecting an increase in US oil consumption by 340,000 bpd in 2018 as manufacturing is gaining momentum, driving the demand for energy.
These trends might moderately support oil prices in the longer run.
US oil advanced to $53.58/bbl in its seventh day of gains as the North American refining activity accelerated ahead of the summer vacation season, when traditionally the demand for petrol is the highest throughout the year. Meanwhile, as the US is poised to lower its levels of energy imports in the coming years, North American production costs and oil transportation expenses are poised to push WTI oil prices higher and possibly above the Brent benchmark in the medium-term.
OPEC is expected to announce an extension of its oil extraction caps during a meeting on 25 May. The production cuts will likely be intact for another six months. As the demand for oil intensifies along with the expected acceleration in economic growth in the US and Europe, the crude oil market might stabilise around higher prices.
"This higher level of certainty in the resource base for future supply is what helps drive our confidence," the Goldman Sachs analysts said in a note.
The bankers are currently expecting an average WTI oil price of $54/bbl in the five-year perspective, whilst in the longer run the average oil price would be around $50/bbl — which allows for significant increases in oil prices in the short-term in the upward stage of the market cycle.
"The last time the market had this level of certainty around long-term oil prices was before the rise in long-dated oil prices in 2003, nearly 15 years ago," Goldman Sachs said.
Overall, the bankers are currently more optimistic of the raw materials market for the first time since commodity prices started crumbling in mid-2013, producing dramatic fluctuations in emerging market currencies and international trade.
