Oil prices hit four-month high on demand and supply-side concerns

Aug. 9 (UPI) -- A proxy for demand for crude oil and refined petroleum products in the U.S. economy and production cuts from Saudi Arabia helped lift crude oil prices on Wednesday to a level not seen since April.

The price for Brent crude oil, the global benchmark, was trading near $87 per barrel as of mid-day Wednesday. Brent last broke through the $87 mark on April 12.

The rally was supported in part by data showing increased demand for crude oil and refined petroleum products in the U.S. economy.

The Energy Information Administration, the statistical arm of the Energy Department, showed the total amount of refined petroleum products sent to the market over the four-week period ending Aug. 4, a proxy for total demand, is up 2.9% from the same time last year.

Motor gasoline and jet fuel also saw an increase, with jet fuel supplied up 4.3% compared to the same four-week period last year.

The demand indicators come amid expectations that supplies will be at a premium during the second half of the year.

"The energy sector, excluding natural gas, has risen strongly this quarter with sentiment experiencing a major positive turnaround as aggressive voluntary production cuts from Saudi Arabia continues to tighten the market," Ole Hanson, the head of commodities research at Saxo Bank in Denmark, said in a research note. "In addition, concerns about the global economic outlook have yet to impact demand in any meaningful way, and together these two developments have seen WTI and Brent reach four-month highs."

WTI refers to West Texas Intermediate, the U.S. benchmark for the price of oil. WTI was trading at around $83 per barrel, up 18% from the first full week of July.

Supply-side concerns prompted EIA to revise its forecast for oil prices in its market report for August. EIA put Brent at $85 per barrel for August, adding that supply restraint from Saudi Arabia could drive prices even higher.

For the second half of the year, EIA expects Brent to average $86 per barrel, up $7 per barrel from its July forecast. The outlook, however, could change by next year.

"Rising global oil production in 2024 in our forecast keeps pace with oil demand and puts moderate downward pressure on crude oil prices beginning in the second quarter of 2024," the report read.

The increase in crude oil production comes largely from countries outside the Organization of the Petroleum Exporting Countries. EIA estimates total U.S. crude oil production reaches a record next year at just over 13 million barrels per day.