According to analysts, U.S. crude oil inventories have reached their lowest point this year and are likely to continue to decline as record demand, producer supply cuts, weaker futures, and higher storage costs all point to additional drawdowns.

They predicted that a tight crude market will continue through 2024 and put additional upward pressure on world oil prices. The fact that U.S. inventories decreased by 10.6 million barrels last week, bringing them to their lowest level since December 2022’s 420.65 million barrels, is encouraging.

“We are already around 2022’s close and I don’t think we are getting a build in the second half of the year,” said Al Salazar, a senior vice president at energy technology firm Enverus. “$100 a barrel (for Brent crude) is definitely within striking range.”

On Friday, Brent crude futures were trading at $88.08 a barrel while U.S. crude futures were at $85.16.

According to an estimate made by the International Energy Agency in August, this year’s global consumption is expected to reach a record high due to increased demand for power, increased air travel, and booming petrochemical activity in China. The demand may increase by 2.2 million barrels per day (bpd) this year, reaching 102.2 million bpd.

The IEA predicted that oil production would increase by 1.5 million bpd, but it added that supply would not keep up with rising demand. Supply has decreased as a result of Saudi Arabia’s recent voluntary reduction in output, which is projected to offset growth in U.S. shale production as well as that of Iran and Venezuela.

WITHDRAWALS FROM INVENTORY

In total, 12.8 million bpd of oil might be produced in the United States in 2023, but economists doubt that shale gains can be maintained without a significant uptick in drilling activity. This month had the biggest drop in active U.S. oil rigs since February 2022.

Additionally, short-term U.S. oil prices are higher than futures, which has prompted more inventory withdrawals. Recently, U.S. crude for delivery in October traded around $6 more expensive than for delivery one year from now.

Even while six-month futures momentarily surpassed those for October delivery in late July, U.S. stocks declined as a result of central bankers raising interest rates, which increased the cost of purchasing and storing oil.

It will be challenging to encourage that storage, according to Christopher Haines, an analyst at Energy Aspects.

According to Ernie Barsamian, CEO of terminal storage clearinghouse The Tank Tiger, prices of petroleum for future deliveries must trade at least 50 cents above October pricing before it is economical to store crude.

When interest rates were approximately 1%, predictions ranged from 10 to 20 cents.