Brent oil prices rise above $81 a barrel for the first time since April

For the first time since the end of April, Brent oil prices rose above $81 per barrel, leaving the narrow corridor in which they had been for more than two months. The recovery in the market was facilitated by the weakening of the US currency, which reduces the risks of further tightening of the Fed’s policy, as well as the growing shortage of fuel in the global market due to the reduction in supplies from OPEC+ and the overall growth in demand. At the same time, the reduction of the Urals discount supports both the Russian stock market and the Russian currency.

The cost of North Sea Brent oil on July 13 rose above $81 per barrel for the first time since the end of April.

According to Investing.com, she reached $81.25 wa barrel, which is 1.4% higher than the close of the previous year.

Even taking into account the correction at the end of the day, as a result of a three-day rally, prices rose by more than 3% and left a rather narrow corridor – $ 73-78 per barrel – in which they had been for more than two months.

This had a positive effect on the Russian grade Urals, especially since the discount to North Sea oil has significantly decreased. Thus, according to Reuters, Russian oil quotations for delivery to Northern Europe were close to $63 per barrel on Thursday, and about $64 per barrel for delivery to Southern Europe, thereby confidently overcoming the price ceiling set by Western countries for the purchase of Russian oil.

Experts attribute the positive dynamics of oil prices to the weakening of the dollar and the slowdown in consumer prices in the US.

According to Ekaterina Krylova, managing expert of the PSB Analytics and Expertise Center, the exit above $80 per barrel was provoked by the fact that inflation data in the US for June turned out to be better than expected. Growth slowed from 4% (in May) to 3%, with a consensus of 3.1%, the lowest since 2021.

Together with the weakening dollar, this supported oil prices, easing the risks of tightening the Fed’s policy, the expert notes. The DXY index, which measures the dollar against six major currencies, has fallen below 100 for the first time since April 2022, according to Investing.com.

Additional support for the market was provided by the imposed restrictions on production by OPEC +, and, in general, the shortage of fuel supply on the world market. As Tsifra Broker analyst Daniil Bolotskikh notes, last week, in order to stabilize the market, Saudi Arabia announced the extension in August of a voluntary reduction in oil production by 1 million barrels per day, Russia will also further reduce production by 500 thousand barrels per day. At the same time, the analyst clarifies, in the United States, strategic oil reserves have been at a minimum since 1983 for four weeks in a row, while commercial reserves over the past week increased by less than 6 million barrels.

In addition, Anna Mikhailova, an analyst at Ingosstrakh-Investments Management Company, says that, in general, the mood of investors could be positively affected by an improvement in the assessment of oil demand in the world in 2023 and 2024.

Among the main factors influencing the market are the demand from the world’s leading economies, including China, the US decision on the volume and timing of oil purchases for the country’s strategic reserves.

Ekaterina Krylova points to strong statistics on China, whose oil imports in June reached 12.7 million barrels per day, almost 1.5 times higher than last year’s figure. According to Mr. Bolotskikh, if the US begins to actively replenish its reserves, then prices may rise to $85 per barrel.

As Anna Mikhailova notes, a higher level of oil prices with a simultaneous reduction in discounts leads to an increase in the value of Russian exports, which, other things being equal, supports the ruble. According to Daniil Bolotskikh, the growth in the cost of fuel “has a positive effect on the stock market due to the growth in the shares of oil companies.” In particular, in his opinion, an attempt to overcome the level of 2900 points on the Moscow Exchange index at the beginning of trading on Thursday was “related to these circumstances.”

Now the stock prices of oil companies – Rosneft, Lukoil, Tatfnet, Surgutneftegaz – are near the highs since the 20th of February last year. While many blue chips, with the exception of Sberbank shares, fell short of those values. At the same time, oil companies remain among the few in the Russian market that pay dividends, and considerable ones at that.

Dmitry Mikhailovich