BCO soon again 120 AND OIL READY FOR 150 BEFORE TACKLING 220USD
Oil Could Rise to $120-150 Range in Next Few Months
Oil price forecast April 2022 and beyond: Will prices test $140?
Oil prices eased slightly on Friday, robust US data and weekend risk supporting prices, while US SPR releases as well as yet to be determined ones from other IEA members capped gains. A UN-brokered two-month ceasefire between Saudi Arabia and Yemen’s Houthi rebels has had no noticeable impact on prices today.
The China holiday is definitely muting trading volumes in Asia today, leaving Brent crude unchanged at USD 104.50, and WTI unchanged at USD 99.35. With mainland China, Hong Kong and Taiwan all on holiday tomorrow, I expect the first part of the week in Asia to be quiet.
Overall, I still expect Brent to trade in a choppy USD 100.00 to USD 120.00 range, with WTI bouncing around in a USD 95.00 to USD 115.00 a barrel range. The US SPR and monthly OPEC+ production hikes balanced out by geopolitical tensions elsewhere.
Nearly five weeks after Russia’s invasion of Ukraine, there is no sign of the oil market's increased volatility abating anytime soon.
Dollar Unlikely to Lose Dominance Due to Sanctions -- Market Talk
1435 GMT - Claims that the dollar could lose its dominance in the global economy due to western sanctions against Russia appear exaggerated, Capital Economics says. The sanctions imposed on Russia will accelerate the development of bilateral trading blocs that use alternative currencies but this won't rival the scale and reach of the dollar, Capital Economics says. The dollar remains the world's leading reserve currency but its role as the dominant currency for settling cross-border transactions is more important from the perspective of geopolitical influence, it says. "Foreign demand for dollar assets creates the deep and liquid markets that underpin the dollar's global dominance
WEAK USDOLLAR IS POWER BOOSTER FOR THE OIL PRICE as many countries use the weak USD to buy more oil beacuase they are afraid of further sanctions and paying more for expencieve oil. If you knew that 12months from now one barrel oil willcost 300USD,wouldn´t itbe a nice situation to buy oil right cheaper as it cots now? Think Big.
Oil prices shot up to $100/barrel (bbl) on the day Russia invaded Ukraine (24 February 2022) and continued to rise in the first week of the conflict. On 7 March, international benchmark Brent oil futures hit nearly $140 per barrel (bbl), while US oil futures West Texas Intermediate (WTI) reached $130/bbl.
The prices spiked after the US and its European allies sought to ban the purchase of oil from the Russian Federation amid the conflict in Ukraine.
Since then, Brent and WTI have retreated due to several factors, including concerns about demand as a fresh Covid-19 flare-up forced China – the world’s largest oil importer – to impose a large-scale lockdown. However, prices have remained above $100/bbl.
Will oil prices hold at their current level of above $100 for the rest of this year? Dive into the impact of the ongoing Russia–Ukraine conflict and other factors on the oil price projections and read the latest on oil prices 2022 from analysts.
Oil steadies as IEA prepares details of reserve release
Oil prices have pulled back considerably since peaking last month in the early days of the invasion. Declines over the last couple of weeks have been aided by lockdowns in China and a massive SPR release by the IEA, the details of which should become known early this week.
The US has already made its contribution known which will go some way to easing the tightness in the market and supply shock from Russia, where sanctions are biting. This is only a temporary solution but offers a buffer over the next six months as producers ramp up production, including OPEC+ which has until now refused to accelerate its efforts in any significant way.
Oil prices remain high but they’re certainly at more sustainable and less economically threatening levels. WTI slipped below USD 100 and could remain there depending on the full details of the IEA release and the length of Chinese lockdowns but the war in Ukraine remains a significant upside risk.
Gold holding up as recession signals flash
Gold is holding up fairly well in the face of multiple super-sized rate hikes being priced into the markets and risk appetite remaining fairly strong. The inflation risk is seemingly providing plenty of support which is why we’re seeing so many rate hikes being priced into the markets, along with the downside economic risks that continue to mount.
One thing that has come with these super-sized hikes is recession risks, as evident by the inversions we’re now seeing on the US yield curve. The 2-10 inversion is now clear for all to see and has previously been a fairly reliable recession indicator. Of course, it doesn’t offer any kind of specific timeline and there are doubts about its reliability in an enormous Fed balance sheet world. The economic data may also provide some comfort.
But gold is holding firm and is actually up marginally on the day. It appears to have consolidated just above USD 1900 over the last few weeks with brief dips below being quickly bought into. Equally, it’s not making any real headway to the upside, making it quite a choppy market at the moment that offers little in the way of directional clues.
Oil rose for a third day as support grows for a European Union ban on Russian crude. Expectations of a further escalation of the war is also helping to drive prices higher.
Oil products price forecast update April 2022
Crude oil prices typically fluctuate based on seasonal demand and supply. Most recently, the COVID-19 pandemic caused crude price changes through a drop in demand. While economic recovery is underway, oil prices continue to be affected by global uncertainties.
Key Takeaways
The EIA forecast that Brent crude oil prices will average $82.87/b in 2022.
WTI is forecast to average $79.35/b in 2022, up from $68.21/b in 2021 .
Oil prices are rising due to an increase in demand and a decrease in supply.
OPEC is gradually increasing oil production after limiting it due to a decreased demand for oil during the pandemic.
Current Oil Prices
There are two grades of crude oil used as benchmarks for other oil prices: the West Texas Intermediate (WTI) at Cushing and North Sea Brent. WTI at Cushing comes from the U.S. and is the benchmark for U.S. oil prices. North Sea Brent oil comes from Northwest Europe and is the benchmark for international oil prices.
Internationally, Brent crude oil prices averaged nearly $75 per barrel (/b) in December 2021, down $6/b from November's average. Prices increased in January, up to $87/b, but they are expected to average $82.87/b in 2022, according to the U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook released on Feb. 8, 2022.
West Texas Intermediate averaged $71.71 per barrel in December 2021, and rose to $79.39/b on Jan. 4, 2022.1 The EIA forecasts that WTI prices will average $79.35/b in 2022, up from $68.21 in 2021.2
Oil prices are affected by several factors that include everything from weather to economic and political instabilities.
It also estimates that global oil and liquid fuels demand was 101.08 million b/d in December 2021. That's an increase of 5.52 million b/d from December 2020, but only 0.24 million b/d lower than December 2019. However, the EIA expects demand to average 100.52 million b/d in 2022.3
2021 Oil Prices
Brent crude oil prices started low in 2021, averaging $54.77/b in January.4 But they rose in the second quarter, closing at $67.73/b in April 2021. West Texas Intermediate (WTI) at Cushing in the United States performed similarly, closing at $63.50/b in April. The third quarter saw massive hikes in prices, with Brent prices increasing to a height of $84.52/b in early November, and WTI reaching $85.64/b in late October. By the end of 2021 Brent sold at $77.24/b, and WTI at $75.33/b.56
Oil Price Forecast 2025 to 2050
The EIA predicts that by 2025 Brent crude oil's nominal price will rise to $66/b. By 2030, world demand is seen driving Brent prices to $89/b. By 2040, prices are projected to be $132/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices could be $185/b.
WTI per barrel price is expected to rise to $64 per barrel by 2025, increasing to $86 by 2030, $128 by 2040, and $178 by 2050.7
The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 1.9% annually, while energy consumption decreases by 0.4% a year.8
Future oil prices will depend greatly on innovations in energy, transportation, and other industries as societies work to become less fossil fuel dependent.
Always understand.the oil companies shareholders want only one thing: HIGHER OIL PRICES! HIGHER PROFIS!
Reasons for Today’s Volatile Oil Prices
Oil prices used to have a predictable seasonal swing. They spiked in the spring as oil traders anticipated high demand for summer vacation driving. Once demand peaked, prices dropped in the fall and winter.
Oil prices are more volatile today due to many factors, but four are the most influential.
1. US Oil Supply
The coronavirus pandemic and natural events are still affecting oil demand and supply. The U.S. experienced a drop in production following Hurricane Ida in September as the storm shut at least nine refineries.
The EIA estimates that U.S. crude oil production will average 11.8 million b/d in 2022 and 12.41 million b/d in 2023.9
2. Diminished OPEC Output
Oil price increases also reflect supply limitations by the Organization of the Petroleum Exporting Countries (OPEC) and OPEC partner countries. In 2020, OPEC cut oil production due to decreased demand during the pandemic. It gradually increased oil output through 2021 and into 2022. Supply chain disruptions in late 2021 affected global trade as well.
At its most recent meeting in December 2021, OPEC stated it would continue to gradually adjust oil production upward by 0.4 million barrels per day (mb/d) in January 2022.10
3. Natural Gas
Countries in Asia have relied on coal to generate power, but recent shortages have turned them to natural gas. Higher temperatures in parts of Asia and Europe have led to high demand for natural gas to generate power.
COVID-19 has hampered Europe's natural gas production, and a colder-than-expected heating season in early 2021 reduced supplies further.
As a result, natural gas prices soared in 2021 and are expected to remain high in 2022, and affected countries have turned to gas-to-oil switching to reduce power generation costs.2
4. Global Inventory Draw
As a reduction in oil production continues globally, countries are forced to draw from their stored reserves (not including the strategic petroleum reserves). This steady draw of oil is contributing to the increase in prices, because inventories are decreasing.
How Biden’s Huge Strategic Oil Release Could Backfire
President Biden’s huge SPR release announcement has pushed WTI prices back below $100.
SPR release may calm crude prices only in the short term.
U.S. SPR may need to be replenished at higher oil prices.
This week, the Biden administration revealed that it will release as much as 180 million barrels of crude oil in a bid to calm oil prices, which have remained above $100 per barrel for an extended period of time. The International Energy Agency, meanwhile, is coordinating a smaller but international reserve release of some 60 million barrels and has called an emergency meeting to discuss how exactly to go about it.
It remains unclear whether part of the 180 SPR release in the United States will be a completely separate endeavor or if some of these barrels will be part of the IEA release. Earlier this year, the U.S. had agreed to release 30 million barrels as part of the IEA push. What is clear is that the success of these releases in calming down oil prices is quite unlikely.
The United States last year announced the release of 50 million barrels in an effort to bring down prices t the pump, which were eroding Americans’ purchasing power and weighing on the President’s approval ratings.
This pressured prices for a few days before they rebounded, driven by continued discipline among U.S. producers, equal discipline in OPEC+, and a relentless increase in demand for the commodity.
Then Russia invaded Ukraine, and the U.S. banned imports of Russian crude and fuels. It also sanctioned the country’s financial system heavily, making paying for Russian crude and fuels too much of a headache for the dollar-based international industry. Prices soared again before retreating some, but remain firmly in three-digit territory.
Related: Why We Cannot Just “Unplug” Our Current Energy System
As of mid-March, the Department of Energy said, some 30 million barrels of crude from the strategic petroleum reserve had been sold or leased. That’s more than half of the 50 million barrels announced in November, and it appears to have had zero effect on price movements.
But the new reserve release is a lot bigger, so it should make a difference, shouldn’t it? It amounts to some 1 million bpd over several months, per reports about White House plans in this respect. Unfortunately, but importantly, oil’s fundamentals have not changed much since November.
U.S. shale oil producers, the companies that a few years ago prompted talk among analysts that OPEC was becoming increasingly irrelevant, have rearranged their priorities. They no longer strive for growth at all costs. Now they strive for happy shareholders.
This has given more opportunities to smaller independent drillers with no shareholders to keep happy. Yet these have also run into challenges, mainly in the form of insufficient funding because the energy transition has had banks worrying about their reputations and their own shareholders.
Pandemic-related supply disruptions have also affected the U.S. oil industry’s ability to expand output. Frac sand, cement, and equipment are among the things that have been reported to be in short supply in the shale patch. Now, there’s a shortage of steel tubing, too.
Meanwhile, OPEC is doing business as usual, sticking to its commitment to add some 400,000 bpd to oil markets every month until its combined output recovers to pre-pandemic levels. Just this week, the cartel approved another monthly addition of 432,000 bpd to its combined output despite increasingly desperate calls from the U.S. and the IEA for more barrels.
OPEC has been demonstrating increasingly bluntly that its interests and the interests of some of its biggest clients may not be in alignment right now. It has refused to openly condemn Russia for its actions in Ukraine and has not joined the Western sanction push.
Related: U.S. Oil Demand Has Been Vastly Overestimated
On the contrary, OPEC is gladly doing business with Russia. And Saudi Arabia and the UAE, the two OPEC members that actually have the capacity to boost production beyond their quotas, have deemed it unwise to undermine their partnership with Russia by acquiescing to the West’s request for more oil.
In this environment, releasing whatever number of barrels from strategic reserves could only provide a very short relief at the pump. Then, it may make matters even worse. As one oil market commentator on Twitter said about the SPR release news, the White House will be selling these barrels at $100 and then may have to buy them at $150.
Indeed, one thing that tends to get overlooked during turbulent times is that the strategic petroleum reserve of any country needs to be replenished. It’s not called strategic for laughs. And a 180-million-barrel reserve release will be quite a draw on the U.S. SPR, which currently stands at over 580 million barrels. If oil’s fundamentals remain the same, prices will not be lower when the time to replenish the SPR comes.
This seems the most likely development. The EU, the UK, and the United States have stated sanctions against Russia will not be lifted even if Moscow strikes a peace deal with the Ukraine government. This means Russian oil will continue to be hard to come by for those dealing in dollars or euros.
According to the IEA, the shortfall could be 3 million barrels daily, to be felt this quarter. OPEC+ is not straying from its course. In some good news, at least, U.S. oil production rose last week for the first time in more than two months, by a modest 100,000 bpd.
Oil price forecast April 2022 and beyond: Will prices test $140?
Oil prices eased slightly on Friday, robust US data and weekend risk supporting prices, while US SPR releases as well as yet to be determined ones from other IEA members capped gains. A UN-brokered two-month ceasefire between Saudi Arabia and Yemen’s Houthi rebels has had no noticeable impact on prices today.
The China holiday is definitely muting trading volumes in Asia today, leaving Brent crude unchanged at USD 104.50, and WTI unchanged at USD 99.35. With mainland China, Hong Kong and Taiwan all on holiday tomorrow, I expect the first part of the week in Asia to be quiet.
Overall, I still expect Brent to trade in a choppy USD 100.00 to USD 120.00 range, with WTI bouncing around in a USD 95.00 to USD 115.00 a barrel range. The US SPR and monthly OPEC+ production hikes balanced out by geopolitical tensions elsewhere.
Nearly five weeks after Russia’s invasion of Ukraine, there is no sign of the oil market's increased volatility abating anytime soon.
Dollar Unlikely to Lose Dominance Due to Sanctions -- Market Talk
1435 GMT - Claims that the dollar could lose its dominance in the global economy due to western sanctions against Russia appear exaggerated, Capital Economics says. The sanctions imposed on Russia will accelerate the development of bilateral trading blocs that use alternative currencies but this won't rival the scale and reach of the dollar, Capital Economics says. The dollar remains the world's leading reserve currency but its role as the dominant currency for settling cross-border transactions is more important from the perspective of geopolitical influence, it says. "Foreign demand for dollar assets creates the deep and liquid markets that underpin the dollar's global dominance
WEAK USDOLLAR IS POWER BOOSTER FOR THE OIL PRICE as many countries use the weak USD to buy more oil beacuase they are afraid of further sanctions and paying more for expencieve oil. If you knew that 12months from now one barrel oil willcost 300USD,wouldn´t itbe a nice situation to buy oil right cheaper as it cots now? Think Big.
Oil prices shot up to $100/barrel (bbl) on the day Russia invaded Ukraine (24 February 2022) and continued to rise in the first week of the conflict. On 7 March, international benchmark Brent oil futures hit nearly $140 per barrel (bbl), while US oil futures West Texas Intermediate (WTI) reached $130/bbl.
The prices spiked after the US and its European allies sought to ban the purchase of oil from the Russian Federation amid the conflict in Ukraine.
Since then, Brent and WTI have retreated due to several factors, including concerns about demand as a fresh Covid-19 flare-up forced China – the world’s largest oil importer – to impose a large-scale lockdown. However, prices have remained above $100/bbl.
Will oil prices hold at their current level of above $100 for the rest of this year? Dive into the impact of the ongoing Russia–Ukraine conflict and other factors on the oil price projections and read the latest on oil prices 2022 from analysts.
Oil steadies as IEA prepares details of reserve release
Oil prices have pulled back considerably since peaking last month in the early days of the invasion. Declines over the last couple of weeks have been aided by lockdowns in China and a massive SPR release by the IEA, the details of which should become known early this week.
The US has already made its contribution known which will go some way to easing the tightness in the market and supply shock from Russia, where sanctions are biting. This is only a temporary solution but offers a buffer over the next six months as producers ramp up production, including OPEC+ which has until now refused to accelerate its efforts in any significant way.
Oil prices remain high but they’re certainly at more sustainable and less economically threatening levels. WTI slipped below USD 100 and could remain there depending on the full details of the IEA release and the length of Chinese lockdowns but the war in Ukraine remains a significant upside risk.
Gold holding up as recession signals flash
Gold is holding up fairly well in the face of multiple super-sized rate hikes being priced into the markets and risk appetite remaining fairly strong. The inflation risk is seemingly providing plenty of support which is why we’re seeing so many rate hikes being priced into the markets, along with the downside economic risks that continue to mount.
One thing that has come with these super-sized hikes is recession risks, as evident by the inversions we’re now seeing on the US yield curve. The 2-10 inversion is now clear for all to see and has previously been a fairly reliable recession indicator. Of course, it doesn’t offer any kind of specific timeline and there are doubts about its reliability in an enormous Fed balance sheet world. The economic data may also provide some comfort.
But gold is holding firm and is actually up marginally on the day. It appears to have consolidated just above USD 1900 over the last few weeks with brief dips below being quickly bought into. Equally, it’s not making any real headway to the upside, making it quite a choppy market at the moment that offers little in the way of directional clues.
Oil rose for a third day as support grows for a European Union ban on Russian crude. Expectations of a further escalation of the war is also helping to drive prices higher.
Oil products price forecast update April 2022
Crude oil prices typically fluctuate based on seasonal demand and supply. Most recently, the COVID-19 pandemic caused crude price changes through a drop in demand. While economic recovery is underway, oil prices continue to be affected by global uncertainties.
Key Takeaways
The EIA forecast that Brent crude oil prices will average $82.87/b in 2022.
WTI is forecast to average $79.35/b in 2022, up from $68.21/b in 2021 .
Oil prices are rising due to an increase in demand and a decrease in supply.
OPEC is gradually increasing oil production after limiting it due to a decreased demand for oil during the pandemic.
Current Oil Prices
There are two grades of crude oil used as benchmarks for other oil prices: the West Texas Intermediate (WTI) at Cushing and North Sea Brent. WTI at Cushing comes from the U.S. and is the benchmark for U.S. oil prices. North Sea Brent oil comes from Northwest Europe and is the benchmark for international oil prices.
Internationally, Brent crude oil prices averaged nearly $75 per barrel (/b) in December 2021, down $6/b from November's average. Prices increased in January, up to $87/b, but they are expected to average $82.87/b in 2022, according to the U.S. Energy Information Administration's (EIA) Short-Term Energy Outlook released on Feb. 8, 2022.
West Texas Intermediate averaged $71.71 per barrel in December 2021, and rose to $79.39/b on Jan. 4, 2022.1 The EIA forecasts that WTI prices will average $79.35/b in 2022, up from $68.21 in 2021.2
Oil prices are affected by several factors that include everything from weather to economic and political instabilities.
It also estimates that global oil and liquid fuels demand was 101.08 million b/d in December 2021. That's an increase of 5.52 million b/d from December 2020, but only 0.24 million b/d lower than December 2019. However, the EIA expects demand to average 100.52 million b/d in 2022.3
2021 Oil Prices
Brent crude oil prices started low in 2021, averaging $54.77/b in January.4 But they rose in the second quarter, closing at $67.73/b in April 2021. West Texas Intermediate (WTI) at Cushing in the United States performed similarly, closing at $63.50/b in April. The third quarter saw massive hikes in prices, with Brent prices increasing to a height of $84.52/b in early November, and WTI reaching $85.64/b in late October. By the end of 2021 Brent sold at $77.24/b, and WTI at $75.33/b.56
Oil Price Forecast 2025 to 2050
The EIA predicts that by 2025 Brent crude oil's nominal price will rise to $66/b. By 2030, world demand is seen driving Brent prices to $89/b. By 2040, prices are projected to be $132/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices could be $185/b.
WTI per barrel price is expected to rise to $64 per barrel by 2025, increasing to $86 by 2030, $128 by 2040, and $178 by 2050.7
The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 1.9% annually, while energy consumption decreases by 0.4% a year.8
Future oil prices will depend greatly on innovations in energy, transportation, and other industries as societies work to become less fossil fuel dependent.
Always understand.the oil companies shareholders want only one thing: HIGHER OIL PRICES! HIGHER PROFIS!
Reasons for Today’s Volatile Oil Prices
Oil prices used to have a predictable seasonal swing. They spiked in the spring as oil traders anticipated high demand for summer vacation driving. Once demand peaked, prices dropped in the fall and winter.
Oil prices are more volatile today due to many factors, but four are the most influential.
1. US Oil Supply
The coronavirus pandemic and natural events are still affecting oil demand and supply. The U.S. experienced a drop in production following Hurricane Ida in September as the storm shut at least nine refineries.
The EIA estimates that U.S. crude oil production will average 11.8 million b/d in 2022 and 12.41 million b/d in 2023.9
2. Diminished OPEC Output
Oil price increases also reflect supply limitations by the Organization of the Petroleum Exporting Countries (OPEC) and OPEC partner countries. In 2020, OPEC cut oil production due to decreased demand during the pandemic. It gradually increased oil output through 2021 and into 2022. Supply chain disruptions in late 2021 affected global trade as well.
At its most recent meeting in December 2021, OPEC stated it would continue to gradually adjust oil production upward by 0.4 million barrels per day (mb/d) in January 2022.10
3. Natural Gas
Countries in Asia have relied on coal to generate power, but recent shortages have turned them to natural gas. Higher temperatures in parts of Asia and Europe have led to high demand for natural gas to generate power.
COVID-19 has hampered Europe's natural gas production, and a colder-than-expected heating season in early 2021 reduced supplies further.
As a result, natural gas prices soared in 2021 and are expected to remain high in 2022, and affected countries have turned to gas-to-oil switching to reduce power generation costs.2
4. Global Inventory Draw
As a reduction in oil production continues globally, countries are forced to draw from their stored reserves (not including the strategic petroleum reserves). This steady draw of oil is contributing to the increase in prices, because inventories are decreasing.
How Biden’s Huge Strategic Oil Release Could Backfire
President Biden’s huge SPR release announcement has pushed WTI prices back below $100.
SPR release may calm crude prices only in the short term.
U.S. SPR may need to be replenished at higher oil prices.
This week, the Biden administration revealed that it will release as much as 180 million barrels of crude oil in a bid to calm oil prices, which have remained above $100 per barrel for an extended period of time. The International Energy Agency, meanwhile, is coordinating a smaller but international reserve release of some 60 million barrels and has called an emergency meeting to discuss how exactly to go about it.
It remains unclear whether part of the 180 SPR release in the United States will be a completely separate endeavor or if some of these barrels will be part of the IEA release. Earlier this year, the U.S. had agreed to release 30 million barrels as part of the IEA push. What is clear is that the success of these releases in calming down oil prices is quite unlikely.
The United States last year announced the release of 50 million barrels in an effort to bring down prices t the pump, which were eroding Americans’ purchasing power and weighing on the President’s approval ratings.
This pressured prices for a few days before they rebounded, driven by continued discipline among U.S. producers, equal discipline in OPEC+, and a relentless increase in demand for the commodity.
Then Russia invaded Ukraine, and the U.S. banned imports of Russian crude and fuels. It also sanctioned the country’s financial system heavily, making paying for Russian crude and fuels too much of a headache for the dollar-based international industry. Prices soared again before retreating some, but remain firmly in three-digit territory.
Related: Why We Cannot Just “Unplug” Our Current Energy System
As of mid-March, the Department of Energy said, some 30 million barrels of crude from the strategic petroleum reserve had been sold or leased. That’s more than half of the 50 million barrels announced in November, and it appears to have had zero effect on price movements.
But the new reserve release is a lot bigger, so it should make a difference, shouldn’t it? It amounts to some 1 million bpd over several months, per reports about White House plans in this respect. Unfortunately, but importantly, oil’s fundamentals have not changed much since November.
U.S. shale oil producers, the companies that a few years ago prompted talk among analysts that OPEC was becoming increasingly irrelevant, have rearranged their priorities. They no longer strive for growth at all costs. Now they strive for happy shareholders.
This has given more opportunities to smaller independent drillers with no shareholders to keep happy. Yet these have also run into challenges, mainly in the form of insufficient funding because the energy transition has had banks worrying about their reputations and their own shareholders.
Pandemic-related supply disruptions have also affected the U.S. oil industry’s ability to expand output. Frac sand, cement, and equipment are among the things that have been reported to be in short supply in the shale patch. Now, there’s a shortage of steel tubing, too.
Meanwhile, OPEC is doing business as usual, sticking to its commitment to add some 400,000 bpd to oil markets every month until its combined output recovers to pre-pandemic levels. Just this week, the cartel approved another monthly addition of 432,000 bpd to its combined output despite increasingly desperate calls from the U.S. and the IEA for more barrels.
OPEC has been demonstrating increasingly bluntly that its interests and the interests of some of its biggest clients may not be in alignment right now. It has refused to openly condemn Russia for its actions in Ukraine and has not joined the Western sanction push.
Related: U.S. Oil Demand Has Been Vastly Overestimated
On the contrary, OPEC is gladly doing business with Russia. And Saudi Arabia and the UAE, the two OPEC members that actually have the capacity to boost production beyond their quotas, have deemed it unwise to undermine their partnership with Russia by acquiescing to the West’s request for more oil.
In this environment, releasing whatever number of barrels from strategic reserves could only provide a very short relief at the pump. Then, it may make matters even worse. As one oil market commentator on Twitter said about the SPR release news, the White House will be selling these barrels at $100 and then may have to buy them at $150.
Indeed, one thing that tends to get overlooked during turbulent times is that the strategic petroleum reserve of any country needs to be replenished. It’s not called strategic for laughs. And a 180-million-barrel reserve release will be quite a draw on the U.S. SPR, which currently stands at over 580 million barrels. If oil’s fundamentals remain the same, prices will not be lower when the time to replenish the SPR comes.
This seems the most likely development. The EU, the UK, and the United States have stated sanctions against Russia will not be lifted even if Moscow strikes a peace deal with the Ukraine government. This means Russian oil will continue to be hard to come by for those dealing in dollars or euros.
According to the IEA, the shortfall could be 3 million barrels daily, to be felt this quarter. OPEC+ is not straying from its course. In some good news, at least, U.S. oil production rose last week for the first time in more than two months, by a modest 100,000 bpd.