GO - Analysts see further oil price gains possible after latest production curbs

2023-08-04 19:00:55 ET

Crude oil tallied its sixth straight weekly gain, the longest streak in more than a year, after Saudi Arabia and Russia extended their supply cuts into next month and U.S. crude inventories fell by a record 17M barrels .

Front-month Nymex crude ( CL1:COM ) for September delivery closed +2.8% for the week to $82.82/bbl, rising nearly 20% during the six-week streak, and front-month October Brent crude ( CO1:COM ) settled +2.1% this week to $86.24/bbl, up nearly 17% for the six weeks.

Both benchmarks hit their highest levels since mid-April, and both have edged into positive territory for the year.

But U.S. natural gas ( NG1:COM ) fell for the fourth time in six weeks, with the front-month September contract ending the week -2.3% to $2.577/MMBtu.

ETFs: ( NYSEARCA: USO ), ( BNO ), ( UCO ), ( SCO ), ( USL ), ( DBO ), ( DRIP ), ( GUSH ), ( USOI ), ( NRGU ), ( UNG ), ( UGAZF ), ( BOIL ), ( KOLD ), ( UNL ), ( FCG )

Despite oil's six-week spike, instead of saying overbought conditions are emerging, some analysts believe the latest announcements of more production cuts by major producers mean further gains are possible .

"Saudi Arabia and Russia have extended their supply reductions into September. Meanwhile, OPEC+ stands ready to take further actions if market conditions warrant it," UBS analysts said, expecting Brent to trade in the $85-$90/bbl range over the coming months.

"With the oil market expected to be in a deficit, we retain a positive outlook [and] therefore continue to advise risk-taking investors to add long exposure," UBS said.

But oil is unlikely to rise much above $85/bbl , even as OPEC+ appears committed to limiting supply, Capitol Economics analyst Gardner wrote, because an H1 increase in global inventories should help to compensate for the H2 supply shortfall, adding U.S. inventories are still higher YTD and China appears to have been stockpiling crude.

"The significant rise in OPEC spare capacity over the past year, the return to growth in international offshore projects, and declining U.S. oil production costs limit the upside to prices," Goldman Sachs analysts wrote this week.

The Energy Select Sector SPDR ETF ( NYSEARCA: XLE ) was +1.2% for the week.

Top 5 gainers in energy and natural resources during the past 5 days: ( CHNR ) +28% , ( TTI ) +20.5% , ( ATLX ) +20.3% , ( LEU ) +19.3% , ( BPT ) +17.6% .

Top 5 decliners in energy and natural resources during the past 5 days: ( EAF ) -19.3% , ( NRT ) -17.5% , ( SILV ) -16.3% , ( GEL ) -13.7% , ( GFI ) -12.9% .

Source: Barchart.com

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