The price of oil: Will your investment portfolio keep on trucking?

On the supply side, oil production has been steady. In North America, equity markets are difficult for issuers to access as a source of financing for growth, and debt has become more expensive with higher interest rates. As a result, producers are tending to live within their means.

At the same time, while oil producers are generating robust cash flows, they remain focused on deleveraging and returning cash to shareholders via dividends and buybacks rather than production growth. The result of this market dynamic is disciplined oil supply growth, a stable price of oil, and predictability at the pump for drivers. 

Meanwhile, OPEC+ continues to show a willingness to defend the commodity price. Saudi Arabia recently announced it will extend its voluntary cut of 1 million barrels per day throughout September, with the option to keep those barrels out of the market for longer, or cut more, if necessary.

In addition, Russia announced a 500,000 barrel per day voluntary cut on exports in August. That also took meaningful supply out of the market. As a result, OPEC+ August exports hit a 5-year low. The exception was 2020, when COVID-19 lockdowns were in full swing.

Currently, oil demand numbers are healthy. However, the market is forward-looking. Investors remain concerned key global economies like the U.S. and Europe could slow. These have weighed on the sentiment and capped the upside for demand and the price of oil in recent months.

Looking forward, all eyes will be on the macroeconomic outlook and the response from Chinese policymakers to the economic slowdown, and what that response could mean for oil demand during the rest of 2023 and into 2024.