Crude oil just finished its biggest monthly gain since January 2022, with the price of West Texas Intermediate (CL=F) and Brent (BZ=F) futures rising more than 15% and 14%, respectively in July.
And according to analysts at Goldman Sachs, this rally has been spurred by traders growing more constructive on their outlook for the global economy.
"The market has abandoned its growth pessimism," Goldman Sachs senior energy economist Daan Struyven and his team wrote in a note to clients.
"Oil prices have rallied by 18% since mid-June on the return to deficits and on the oil market abandoning its negative growth views, which we saw as too pessimistic."
Goldman estimates global oil demand rose to an all-time high in July and revised up its 2023 demand forecast to about 500,000 barrels per day.
Goldman Sachs is maintaining its 12-month-ahead forecast of $93 per barrel for Brent crude and $86 in December 2023. Brent crude settled near $85.50 on Monday.
Expectations the Federal Reserve is near the end of its tightening cycle have also bolstered crude prices amid greater optimism the economy may achieve a "soft landing" that sees inflation come down while a recession is avoided.
In a press conference last week, Fed Chair Jay Powell said he still sees this as a likely outcome for the US economy. Data out Friday showed the Fed's preferred inflation measure in June rose at the slowest pace since September 2021. Meanwhile, second quarter GDP showed the economy grew faster than expected in the second quarter of this year.
Production cuts have also bolstered the oil market with demand turning the corner.
Since October of last year, OPEC+ has announced production cuts which total over 5 million barrels per day into August 2023, notes Andy Lipow of Lipow Oil Associates.
"While [OPEC+] have not taken that much oil off the market, the amount that they are cutting in August is substantial — probably closer to 3.3 million barrels per day. It's a lot," said Lipow.
The world's largest oil producers are expected to extend voluntary production cuts into September. Goldman notes the global oil market fell into a supply deficit in July after having been, on average, in a surplus of about 600,000 barrels per day over the prior year.
"I think [the oil rally] is market participants taking a more risk-on attitude and belief that China is actually going to grow its economy in a robust fashion this year," Stewart Glickman, energy equity analyst at CFRA Research, told Yahoo Finance on Monday.
"This has always been the key issue for 2023 — how quickly will China's GDP improve. I think the jury is still out."
On Monday, WTI settled at $81.80 per barrel and Brent closed at $85.56 per barrel.
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.
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