Middle East

Within OPEC, the view of the oil rally is growing.

Oil recovery could expand further in the coming months due to recovery in demand and limited supply of OPEC +, and prices could exceed $ 100 a barrel, OPEC officials told Reuters. Told.

Oil was last traded at $ 100 a barrel in 2014, after averaging $ 110 over the last two years. Increased shale production and competition among the world’s top oil producers in 2014 heralded a period of low prices that would have come to an end as the global economy emerged from the pandemic.

Until recently, the prospect of returning to triple digits was far from expected, but the market recovered rapidly from the unprecedented slump in demand triggered by the 2020 pandemic, and oil prices temporarily went negative. I turned around.

Brent crude oil traded at a seven-year high of about $ 87 after a 50% rise in 2021 as demand recovered and OPEC and its ally OPEC + carefully eased supply restraints. I am.

In addition to Libya and other outages, the limited impact on demand from variants of the Omicron coronavirus provided additional benefits in 2022.

The Organization of Petroleum Exporting Countries has not published forecasts of oil prices and has not set official price targets for years.

OPEC officials and ministers, as well as allies led by Russia, a group known as OPEC +, often hesitate to discuss record expected price directions and preferred price levels.

Reuters personally spoke to five OPEC officials about the $ 100 oil outlook, some in OPEC and OPEC + committee positions. Of these, only one said it was unlikely, while others did not rule it out or said it might happen.

“There will be more pressure on oil prices in at least the next two months,” said OPEC sources, a major producer.

“In this situation, the price of oil can be close to $ 100, but it’s certainly not very stable.”

Established in late 2016 to eliminate oversupply, OPEC + achieved record supply cuts of 10 million barrels per day (bpd) in 2020, equivalent to 10% of global demand.

As demand recovers, OPEC + aims to increase monthly production by 400,000 barrels / day, but in fact many producers can’t pump any more and may stick to quotas. Monthly production growth is low.

“OPEC + is difficult to produce at target levels because of the lack of necessary investment in the oil industry in the last two years and the minor impact of Omicron on short-term oil demand,” sources said. Added. Two major factors driving the rally.

According to International Energy Agency (IEA) figures, OPEC + production in November fell below the target of 650,000 barrels / day in the latest month available.

In a rare oil price forecast by OPEC + leaders, Russian President Vladimir Putin in October said oil could reach $ 100.

Goldman Sachs said Tuesday that Brent was ready to exceed $ 100 later this year.

‘heating’

OPEC + capacity constraints are part of a broader trend, leaving the oil industry suffering from underinvestment due to the impact of COVID-19. Also, under pressure to focus on cleaner fuels, European oil majors are reducing their investment in oil projects.

As a result, only a few large OPEC producers such as Saudi Arabia, United Arab Emirates and Iraq have significant additional capacity. Iran holds an additional 1 million barrels / day of idle capacity, but at least so far this is not on the market due to US sanctions.

According to another OPEC source, power outages and strong demand are driving the recovery, with further growth expected without hitting demand again, and a return to $ 100 is not excluded.

“The market is getting hot,” he said. “I don’t know, I don’t guess,” he added, adding the prospect of a rally to $ 100. “But if the shortage continues, prices will rise unless COVID-19 hits oil demand again in the coming months.”

Demand risk over $ 85

With rising prices, OPEC and OPEC + will be able to reconstruct the earnings that crashed in 2020. However, some of the groups are not happy with such elevated levels.

Another OPEC + source said, “At these prices, there is a risk of demanding.” “In my personal opinion, I haven’t supported more than $ 85 for a long time. It’s a bit high for sustainable demand growth.”

He wasn’t expecting $ 100 in oil while demand for jet fuel was below pre-pandemic levels.

OPEC in November, when Brent reached its then high of $ 86 and natural gas, electricity and coal prices soared, cited rising energy costs for downgrades in its fourth-quarter 2021 demand forecast. I did.

OPEC + has the ability to produce more in some countries. Bringing this oil to market may require a decision to redistribute production from poorly performing countries, but that is not a trivial political endeavor.

The actual reserve capacity is often considered by the industry to be lower than the number on the nameplate. Saudi Arabia’s reserve oil capacity has not been tested to maximum levels.

OPEC + met on January 4 and agreed in February to further increase its nominal production by 400,000 barrels / day. This suggests that large producers may further widen the delay between actual and promised supplies without making up for the shortfall.

So far, there are no signs that this is being considered, but on January 12, IEA Managing Director Fatih Birol urged OPEC + to reconsider: Key players … (to) revisit their policies in the hope that they will continue to comfort the market with additional volume, “he said.

(Additional report by Noah Browning, edited by Simon Webb and Jason Neely)

https://www.oedigital.com/news/493614-inside-opec-views-are-growing-that-oil-s-rally-could-be-prolonged Within OPEC, the view of the oil rally is growing.

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