Oil market wobbles after OPEC+ refuses to sharply increase output, the impact will linger

Tamas Varga, senior analyst at PVM Oil Associates, said: “The market is overflowing. The question is whether this optimism is justified?.”

July 2021, OPEC + agreed to increase crude oil production further. 400,000 bpd until at least April 2022 to gradually restore the 5.8 million bpd drop in production at that time.

Global oil demand Demand after the Covid-19 pandemic recovered much stronger than most people expected, while global supply was disrupted. turbulent for many reasons, most recently due to major storms in the Gulf of Mexico in the US and because producers did not pay attention to invest in oil exploitation during the past long time.

According to the US Energy Information Administration, average daily crude oil production in the country is now 6.7% lower than a year ago, while commercial crude oil inventories, not including the government’s Strategic Petroleum Reserve, which is 15% lower.

According to analyst Varga, the current price of oil above $80/barrel makes some “feel” annoyed” because the price seemed unreasonably high. However, according to him, this discomfort will only last until the first cold wind in the Northern Hemisphere, when demand will increase sharply and trigger the next strong buying wave.

In fact, the increase in oil prices is not only due to oil supply and demand. Economies are starting to bounce back after a long period of “hibernation” at the worst of the Covid-19 pandemic. Natural gas prices also surged for the same reason, while gas reserves in the US and Europe were both low. Coal and gas prices at the same time increased, along with efforts to cut electricity use due to electricity shortages in China, causing the oil market to be “contaminated”.

Lack of electricity also contributed to high oil prices. Some gas-fired power plants around the world can switch to fuel oil. Although it is too early to say whether any place will do so in large quantities, the markets are all closely related to crude oil.

Saudi Arabian Oil Co. forecast that the temporary transition from natural gas to oil in some power generation sectors could increase demand by 500,000 barrels of oil per day.

With these Based on the above, analyst Varga believes that in the short term, oil prices “still have a lot of room to increase”.

Destination next will be $100?

The administration of US President Joe Biden has previously called on OPEC and its allies increase oil production to deal with soaring gasoline prices. This move comes amid concerns that rising inflation may affect the economic recovery after the Covid1-19 pandemic.

India, a country Another major oil consumer, has also urged OPEC to consider adding more supply to ensure prices are in line with both producers and consumers.

Kieran Clancy, Commodities economist at Capital Economics, acknowledges growing pressure on OPEC+ to quickly restore oil supply to normal levels.

“We think Their refusal to do so means that the market will continue to be short in the fourth quarter, which suggests that oil prices will continue to rise for at least the rest of this year,” Clancy said.

According to this economist, perhaps the most important question right now “is whether OPEC + can achieve its goals?”

“OPEC delivered less than half of its planned output increase in August (latest data available), largely due to disruptions mining operations in Angola and Nigeria. And if production continues to fall short of the group’s target, oil prices could also remain high next year. “

A source quoted a Saudi official as saying: “The kingdom is comfortable with current prices and feels that current prices will not affect the demand for oil”

Meanwhile, other members of OPEC simply cannot boost production.Angola, Algeria and Nigeria are pumping. depleted and have struggled with underinvestment in their oil fields for years, they don’t have the money to quickly add production capacity, meanwhile, sanctions have halted production quantity from Iran and Venezuela.

Recently, Bank of America (BoA) also warned of tension supply-demand balance in the global energy market may soon push oil prices to $100/barrel and lead to another economic crisis.

According to BoA, The increase in gas prices will create a trend of shifting consumption from gas to oil, increasing oil consumption demand and pushing up oil prices. Today is colder than usual.. Opening of international air services is also a factor that increases gasoline demand. Therefore, oil price is likely to reach 100 USD/barrel at the beginning of this winter due to Gas prices surge to record highs as cold weather approaches.This prospect coupled with rising inflationary pressures in many major economies could trigger the next world economic crisis to unfold. bad turn related to the COVID-19 pandemic.

Goldman Sachs analysts c It also revised up its forecast for oil prices, but more modestly than the BoA. Accordingly, Brent oil price is predicted to increase to 90 USD/barrel by the end of this year, up from 80 USD previously, with the reason that global demand recovers faster than expected.

Energy analysts at risk consultancy Eurasia Group said: “Opec members do not seem to see rising prices as an important issue right now.” “However, top exporter Saudi Arabia has begun cutting official selling prices for its key customers, potentially alleviating concerns about Brent futures climbing above $80 a barrel. or more”.

On the demand side, energy analysts at Eurasia Group said China’s industrial sector slowed down, the collapse of Real estate giant Evergrande, rising inflationary pressures and disruptions in many sectors due to Covid-19 around the world could all undermine oil demand growth over the next 12 months.

However, in the near future, a recurrent cold winter across the Northern Hemisphere could also cause severe energy supply shortages in many industrial centers. industry leading industry.

Eurasia Group believes that Brent crude oil price will be at $75/barrel by the end of the year, and will fall to $67 next year.

Ref: Cnbc, Wsj

Vu Ngoc Diep

According to Economic Life