Oil prices could soon break $100

Oil prices could soon return to above $100 per barrel again, much earlier than analysts predicted two months ago, despite global economic headwinds as Opec+ output cuts and EU embargo of Russian crude exports tightens overall supply, oil market analysts said.

The US Energy Information Administration (EIA) now sees the Brent crude oil spot price averaging $102.13 per barrel this year and $95.33 per barrel next year, according to its November short-term energy outlook.

In October, the EIA projected that the Brent spot average would come in at $102.09 per barrel in 2022 and $94.58 per barrel in 2023, said the EIA while slightly raising its Brent oil price forecast for both 2022 and 2023.

On Friday, oil prices dropped by about two per cent due to concern about weakened demand in China and further hike in US interest rates. Brent crude settled at $87.62 a barrel, falling $2.16 or 2.4 per cent, while US West Texas Intermediate crude settled at $80.08 a barrel, losing $1.56 or 1.9 per cent.

Currently, China’s snap lockdowns and slowing economies are the bearish factors dominating the oil market. But the bullish factors could take the upper hand in the near term, sending oil prices to triple digits again, analysts say.

The Opec+ decision to cut the headline production target by two million barrels per day as of November did stabilise the oil market, as the group claims its goal is. Brent prices stabilised at above $90. The risks from here are more to the upside than to the downside, despite aggressive interest rate hikes to fight inflation, commodity analysts say.

“The oil markets are more vulnerable for a $10 move higher than lower,” Ole Hansen, head of Commodity Strategy at Saxo Bank, said on a Gulf Intelligence webinar earlier this week.

Talking about a $10 move in oil prices, the risk is still to the upside, Hansen added, citing the first signs of a potential Chinese easing in Covid sometime next year, the Opec+ cuts, and the EU sanctions on Russian oil.

Opec secretary-general Haitham Al Ghais has said that the organisation is ready to intervene for the benefit of oil markets, Saudi-owned Al Arabiya TV reports, citing Ghais as saying that Opec is aware, cautious and monitoring economic developments worldwide.

In early October, Opec+ announced plans to reduce oil production by two million barrels in November 2022 from the August 2022 required production level. If the plan is implemented, Saudi Arabia and Russia should produce 10.5 million barrels per day (bpd) in November 2022; the production of the Opec 10 group members should reach 25.4 m illion bpd while that of non-Opec producers should be 16.4 million bpd. This in effect would lead to the production of Opec+ coming to an average of 41.9 m illion bpd.

The EIA warned that weakening global economic conditions, which it said could limit oil demand growth, “create the potential for oil prices to end up lower than our forecast”. The organisation also noted that higher than forecast oil prices could stem from supply disruptions resulting from the EU’s impending bans on the seaborne import of crude oil and petroleum products from Russia.

In its latest monthly report, the Opec lowered its oil demand growth forecast for 2022 by 0.1 m illion bpd to a growth of 2.55 million bpd. Oil demand is now expected to reach 99.6 million bpd in 2022 after demand for Q2-2022 was revised slightly higher amid better-thanexpected demand in the OECD countries while Q3-2022 and Q4-2022 demand were revised lower due to the extension of the zero-Covid-19 policy in China, ongoing geopolitical uncertainties and weaker economic activities in OECD Europe.

Opec+ countries in October 2022 reduced oil production by 40,000 bpd and now fall behind the planned production targets by 3.22 million bpd, according to the IEA.

The volume of oil production by the members of the alliance decreased by 30,000bpd compared to September to 38.88 million bpd. At the same time, the target level of production by Opec+ countries for September reached 42.1 million bpd.

— issacjohn@khaleejtimes.com

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