- Oil price rally continues as Brent hits $93.70
- Saudi Arabia implementing 1.3 million barrel per day cuts
- China demand expectations also boosting price
Since late June this year, the price of oil has been rising. Yesterday, Brent crude oil closed at $93.70 a barrel, its highest price since mid-November last year and up c.28% since the end of June, with West Texas Intermediate (WTI) at $90.16 and up c.31% over the same period. So, what has been driving this price rise?
A cut to supply
With the support of Russia and OPEC, Saudi Arabia are administering cuts to oil supply to the tune of 1.3 million barrels per day, and it is expected that a deficit in supply will last through the fourth quarter to the end of the year.
Despite this cut, US inventories rose this week as production moved to pre-pandemic levels and imports increased. This helped peg oil prices back briefly before they continued to climb.
In addition to supply cuts, positivity around demand from China has buoyed prices, with industrial output and retail sales both growing faster than expected in August. This flies in the face of a less bullish growth profile this year for China, but will be welcome news for investors.
Whilst we do not hold an oil-specific position in portfolios, our allocation to a derivative-driven commodity fund has performed well since the end of June, up 6.8% over the period. This comes at a time when, in sterling terms, global equities have risen 2.1%, and provides an alternative allocation within portfolios.