Will the oil market disappoint producers in 2022?

Economic analysts gather that the performance of the oil market this year will not be calm, but rather volatile, and may disappoint the producers, amid worrying expectations about prices that supply will exceed demand accompanied by high inventories, and the “OPEC +” producing group may need to think about a round Other than production cuts.

According to a report by “Bloomberg”, optimists focus on declining inventories and dwindling spare production capacity amid scarcity of investment, and the possibility of triple-digit prices ($100 or more per barrel) before the end of 2022, and of course unless demand growth slows dramatically, the last argument It looks more convincing.

Expectations and fears of “Omicron”

Recently, analysis showed that global oil stocks will build up over the next year, effectively eliminating the impact of all withdrawals seen in 2021.

The producers believe that global oil consumption exceeds its highest level before the outbreak of the epidemic at nearly 101 million barrels per day in 2022, to exceed 103 million barrels per day by next December.

There is significant skepticism about the demand for the omicron mutant, but the evidence available to date suggests that although it is more transmissible than previous strains, it leads to significantly fewer hospitalizations, especially among those who have been vaccinated.

Already, some countries have begun to undo the restrictions they imposed last month, which raises the possibility of more long-haul flights, and strong growth in oil demand in the coming months.

Worried about massive supplies

Massive supplies may lead to a weakness in the oil market, which OPEC sees will exceed 104 million barrels per day before the end of 2022.

But there are real problems with these forecasts, because they assume that the 19 members of the “OPEC +” group will actually pump the prescribed rates of supplies, and in fact many of them cannot.

This gap will not close any time soon, and in fact, the deficit will never be compensated unless those in the group with spare capacity are allowed to make up for the shortfall in production rather than those without.

Since it is unlikely, the deficit will only increase as the target continues to rise by 400,000 barrels per day each month, which is assumed by the “OPEC” forecasts, this means that the supply will not be anywhere near the frightening or hopeful size.

Very weak lines of defense

While higher production from “OPEC +” is likely to narrow this gap, it will at the same time erode global spare capacity available to counter the unexpected disruptions in supply, which are already starting to appear.

In Libya, where the country succeeded in maintaining a production level above one million barrels per day throughout 2021, it was subjected to the closure of a pipeline from its largest oil fields due to internal political turmoil, and the country needed urgent repair to one of the lines serving its largest export terminal, and despite the completion of the reforms Fast forward, but the country’s production is still 25% below last year’s level.

While the UAE, Saudi Arabia and Iraq are all able to pump beyond the baseline levels used to measure production cuts (the reference level), they are probably the only members of the OPEC+ group that are able to do so.

By the time all production cuts adopted by the group in order to stabilize prices and rebalance the global oil market are completed, which is due to happen by September, these three countries will have all the spare oil production capacity in the world.

This spare production capacity may not reach more than 2.5 million barrels per day, or 2.5% of global demand, which is a very weak line of defense against any possible disruption in global supplies, according to historical standards, and of course this will feed market expectations of higher prices.

Close increase in production

Earlier, the 23 member countries of the “OPEC +” alliance had decided, Slight increase in oil production for the month of February While the demand for oil at this stage was not much affected by the proliferation of the mutant Omicron.

Representatives of the 13 member states of the Organization of Petroleum Exporting Countries (OPEC) and their 10 allies within the “OPEC +” alliance agreed to raise “the total level of production by 400,000 barrels per day for the month of February 2022,” according to what “OPEC” announced at the conclusion of a quick meeting. Didn’t see any surprises.

Members of the Organization of Petroleum Exporting Countries (OPEC) and their 10 allies in the “OPEC +” alliance have resisted pressure to increase production further, even though high energy prices exacerbate the problem of rising inflation all over the world.

The 13 member states of the “OPEC” and its allies in the “OPEC +” reduced production significantly in the year 2020, while the epidemic negatively affected demand, and last year, the member states decided to start increasing production again gradually with the recovery of prices, and with a monthly review of the situation.