Oil prices surge by 2%! What happened?

On Monday, oil prices rose, with US oil increasing by more than 2.5% during the session, breaking through the $77 mark and reaching $77.45, while Brent oil also rose by over 2%, surpassing $81. Goldman Sachs analysts are optimistic about oil prices for the third quarter of this year, stating that summer fuel demand will drive a supply shortage in the crude oil market in the coming weeks.

Goldman Sachs analyst Daan Struyven said in the latest report released on Sunday:

Due to the demand for transportation and air conditioning during the summer, the crude oil market will experience a substantial supply shortage of 1.3 million barrels per day, and at that time, the Brent crude oil price is expected to rise to $86 per barrel in the third quarter.

If necessary to stabilize the oil market, OPEC+ can postpone, suspend, or revoke its decision to increase production.

Thanks to lower prices boosting demand, the lower limit for Brent crude oil prices is $75, while the upper limit is $90 due to higher-than-expected global inventories and OPEC+'s production decisions.

It is noteworthy that Goldman Sachs' latest view has shifted from just a week ago:

A week ago, the OPEC+ ministerial meeting agreed to extend its production cut policy until 2025, gradually eliminating voluntary additional production cuts from the end of September. Goldman Sachs believed that this meeting result was bearish for the market, and the price of Brent crude oil might fall below the $75-$90 range.

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At that time, Goldman Sachs pointed out that OPEC+ planned to curb oversupply through production cuts, but before 2025, eight countries, including Saudi Arabia, Iraq, and Russia, might gradually increase production. In addition, it is expected that this year's oil demand will increase by 1.5 million barrels per day, which is lower than OPEC+'s forecast.

In the middle of last week, after several days of declining oil prices, OPEC+ ministerial officials defended the latest oil production policy decision, stating that the market will eventually recognize the correctness of the decision. Energy officials reiterated the option to suspend or reverse production changes if necessary. The Saudi Arabian Energy Minister also criticized the interpretation of the recent OPEC+ agreement by some unnamed bank analysts and media.

On the same day, according to media reports, Russia's oil production in May was 12.81 million tons. Based on the typical conversion rate of 7.33 barrels per ton for Russian crude oil, this is equivalent to 9.393 million barrels per day, 344,000 barrels per day above the OPEC+ quota target. Russia implemented the largest production cut in over a year in May, but the output still exceeded the target.Last week, Russian Oil Minister Novak stated that the country's production target compliance rate for May was close to 100%. The Russian Ministry of Energy did not disclose the ton-barrel conversion ratio it uses to assess the monthly compliance rate, so it may differ from the estimated results mentioned above.

Russia acknowledged that the overproduction in April was due to technical reasons for significantly reducing output and promised to compensate for the excess production. According to OPEC+, Russia will submit a compensation plan before the end of the month.

In recent days, several major Wall Street banks have expressed bullish views on oil prices, and Buffett has also taken action to bottom-fish:

According to UBS analysis, the relevant long positions are at their lowest level since 2011, while short positions are near historical highs. In response, UBS analyst Giovanni Staunovo said, "We believe this is too pessimistic. Inventories should start to decline in the coming weeks, and by August, demand is expected to increase by 2-2.5 million barrels per day."

Bank of America's well-known analyst Hartnett recently stated that oil is the best hedge against geopolitical risks before the U.S. election. The current risk premium for crude oil is zero, and oil is cheaper than both copper and gold. When geopolitical risks occur, oil is usually a winner among assets. The recent plunge in oil prices is puzzling, as we have truly entered a period of easing.

As oil prices fell, the stock market god Buffett made another move, increasing his stake in Occidental Petroleum. Documents disclosed on the SEC website show that from June 5-7, Buffett's Berkshire Hathaway company increased its holdings in Occidental Petroleum common stock for two consecutive days, with a total increase of 2,565,500 shares, costing approximately $153 million.