The oil price revisions started cautiously: some banks saw Brent crude average $ 65 a barrel this year, and others, of a brave nature, predicted the oil benchmark could climb to $ 65 a barrel. Only a few months ago, these predictions sounded quite optimistic for the environment, given the slow deployment of Covid-19 vaccines, the constant excessive supply of oil and reports of coronavirus variants emerging in different parts of the world, threatening new waves of infection. .
Now banks and retailers are talking about Brent at $ 100 a barrel. Of course, a big reason for this is the slump in U.S. oil production caused by Texas Freeze earlier this month. It was even bigger than the production decline caused by the pandemic last year, and it will take a while to recover – if it ever fully recovers.
Yet demand has also gradually recovered in some key markets, particularly in China. This recovery has largely offset the demand for oil in other major consumers such as the United States and caused prices to rise higher.
Then, of course, government incentives were poured into economies around the world in response to the crisis. Trillions of dollars have sunk into businesses and households in the hope that it will rather help put GDP back on the growth path. Once again, the US was instrumental in changing oil sentiment: the repeat of the oil price forecast was quickly followed by President Joe Biden’s proposal for a $ 1.9 billion stimulus package.
The package is still being debated, and it may be smaller than originally proposed. But when it comes to oil, he did his job. Banks, the Fed and the Treasury Department are all expecting a rapid economic recovery as a result of this stimulus, and a rapid recovery will always include a recovery in oil demand as people start traveling more.
Related: Bank of America expects fastest rise in oil prices in 30 years
Meanwhile, global oil supplies are declining, though not all the reasons are clear. The Wall Street Journal recently had a analysis of the so-called missing barrels, or barrels of oil that somehow slip under the radar of inventory trackers and which reached a record high of 68 percent last year from an estimated increase in world inventory growth of a total of 1.39 billion barrels. Beyond the mystery of the missing barrels, OPEC +’s efforts to cut production were fruitful, and this time US shale producers were wary of returning to a growth pattern, not least due to oil prices.
In this context, it is not at all surprising that Bank of America earlier this week Socar Trading, en Energy aspects everyone said Brent could rise to $ 100 over the next two years. According to Socar Trading, the oil marketing company of Azerbaijan, the price on the rebalancing basis is higher, and by summer Brent can fetch $ 80 per barrel. As supply remains tight, it could climb further to $ 100 a barrel, Chief Trade Officer Hayal Ahmadzada tell Bloomberg.
Energy aspects Amrita Sen, on the other hand, cites economic stimulus as the main reason for the expected price increase.
‘This is a futures market, we always discuss well what is going to happen now in the future. That is why prices are rising now, ”Sen said about Bloomberg Surveillance. ‘In 2022, we always asked for $ 80 plus oil. Maybe it’s now $ 100 given how much liquidity there is in the system. I would not rule it out, “she added. Related: Natural gas production dropped 45% during freezing in Texas
Of course, the expectations of a demand rebound outside China have yet to materialize, and then there is the issue of additional barrels that will soon come from Saudi Arabia, perhaps Russia, and probably Iran. Since U.S. production is still suppressed, it cannot immediately affect prices. But a few million barrels a day more will definitely put pressure.
Then there’s the latest from OPEC: the cartel is set to discuss an increase in production in groups, in addition to Saudi Arabia, removed its voluntary savings of 1 million bpd from March. However, the increase will be moderate, if agreed, at 500,000 bpd. This is the same amount of production that OPEC + brought online again in January, which reduced the total cut by 7.2 million bpd, excluding Saudi Arabia’s unilateral additional cut.
This means that in April the group will pump 1.5 million bpd more than it is pumping now, and that does not include the possible return from Iranian barrels to the market. This may interfere with immediate price expectations, but by next year the effects of underinvestment in new production will become clearer, prompting prices to rise.
By Irina Slave for Oilprice.com
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