OPEC officials expect the oil wave to escalate: $100 is an...

Officials atOPEC“The current oil rally may continue in the next few months, due to the recovery in demand and the limited capacity of a conglomerate.”OPEC+“Oversupply, prices may exceed $100 a barrel.

It was the last time he reached oil price $100 per barrel in 2014 after prices have averaged $110 over the previous two years. The rise in shale oil production, and the competition between the major oil producers in the world in 2014, ushered in a period of low prices that seems to have ended when the global economy began to recover from the repercussions of the Covid-19 pandemic.

Until recently, the possibility of a return to a price exceeding $ 100 was a remote possibility, but the market quickly recovered from an unprecedented stagnation in demand caused by the pandemic in 2020, in which prices at one time took a negative trend.

Brent crude is currently trading at $87 a barrel, the highest level it has reached in seven years, after rising 50% in 2021 with the recovery of demand and the caution envisaged by the Organization of the Petroleum Exporting Countries “OPEC” and its allies in the bloc known as “OPEC +” in easing production restrictions.

She added production problems in Libya and elsewhere, and demand was not affected by the mutant Omicron Corona virus, more gains in 2022.

OPEC does not publish its forecasts for oil prices, and it has not targeted a specific price at the official level for years.

In many cases, officials and ministers in the Organization of the Petroleum Exporting Countries and its allies, led by Russia, refrain from discussing the likely direction of prices or the preferred level of prices in public forums.

Reuters spoke in private meetings with five OPEC officials, some of whom hold positions in the “OPEC” and “OPEC +” committees, about the possibility of reaching the price of $ 100 a barrel. Only one of them ruled out this possibility, while the others said they did not rule out it or that it might happen.

An OPEC source from one of the major oil producing countries said: “The pressure on oil prices will increase in the next two months at least.” “Under these circumstances, the price may be close to $100, but it certainly won’t be stable,” he added.

The “OPEC +” bloc, which was formed in late 2016 to get rid of the oversupply of oil, had decided on record supply cuts in 2020, amounting to ten million barrels per day, equivalent to 10% of the volume of global demand. The conglomerate is working to gradually reintroduce these quantities to the market.

With the recovery of demand, the bloc targeted an increase in production by 400,000 barrels per month, but the actual monthly increases in production are less than that. Because many producers can’t pump more oil, and the countries that can increase their production adhere to their quotas.

The source said, “OPEC + finds it difficult to produce at the target level because the necessary investment in the oil industry has not been achieved in the last two years, and the impact of Omicron on demand in the short term was small.” He added that these are the two main factors fueling the bullish wave.

And in November, the latest monthly figures available from the International Energy Agency indicate that “OPEC +” production was less than the target by 650,000 barrels per day.

In a rare move by an OPEC+ leader, Russian President Vladimir Putin predicted in October that the price of oil could reach $100 a barrel.

Investment bank Goldman Sachs said on Tuesday that Brent crude was well placed to rise above $100 later this year.

The restrictions crippling the production capacity of “OPEC +” are part of a broader trend that has caused the oil industry to suffer from a lack of investment due to the repercussions of Covid-19. Also, major European oil companies are reducing their investments in oil projects amid pressure to focus on cleaner fuels.

As a result, few major producers from OPEC, such as Saudi Arabia, the United Arab Emirates and Iraq, have the capacity to increase production significantly.

Iran has the capacity to pump another 1 million barrels per day, but it is constrained at least for the time being by US sanctions.

Another source in “OPEC” said that the disruption of production and the abundance of demand are pushing the upward wave, and that additional gains are likely to be achieved unless demand declines, and that a return to the price of $ 100 is not excluded.

He added, “The market is getting hot. I don’t know and I will not speculate,” commenting on the possibility of reaching the $100 price.

He continued, “But if the disruptions continue, prices will rise as long as Covid-19 does not again affect the demand for oil in the coming months.”

Higher prices allow OPEC and OPEC+ to make up for the revenues that collapsed in 2020. However, some members of the bloc are not comfortable with these high levels.

Another source in “OPEC +” said, “These prices represent a source of danger to demand. In my personal opinion, I do not support a price above $85 for a long time. It is somewhat high, which does not allow for a continuous growth in demand.”

The price was not expected to reach $100, as long as the demand for jet fuel was lower than its pre-pandemic levels.

In November, not long after Brent crude reached $86 a barrel, hitting a three-year high, with a rise natural gas prices In its report for the fourth quarter of 2021, the “OPEC” relied on the rise in energy prices to reduce its demand forecasts.

The “OPEC +” bloc does not have the ability to increase production, which is limited to a few countries. Most likely, pumping this oil into the market will require a decision to rearrange production quotas by excluding countries that are unable to increase production, but this will not be an easy political task.

It is believed in the oil industry that the actual spare production capacity is often less than the official figures announced. Saudi Arabia’s spare production capacity has never been tested at its maximum levels.

On the fourth of this January, the “OPEC +” group held a meeting and agreed to move forward with offering a nominal increase of 400,000 barrels in production in February, which indicates that the deficit between actual and promised supplies may rise. Unless major producers step in to make up the difference.

So far, there is no indication that this is a matter of consideration, although Fatih Birol, Executive Director of the International Energy Agency, urged OPEC + on January 12 to reconsider the matter.

“In light of strong demand growth as well as disruptions in some key players, there may be a need for OPEC + countries to reconsider their policies in the hope that they will continue to calm markets with additional quantities,” Birol said.

(Reuters)