Posthaste: overheating oil – and even OPEC’s reserve capacity might not be enough to cool the markets
The traditional cycle of oil boom and bust appears to have entered the boom phase, with oil prices climbing this morning to their highest level since October 2018.
US crude oil prices hit US $ 71 a barrel this morning as a surge in demand has yet to be met by a strong supply response. Western Canadian Select also hit a five-year high of US $ 56.75 per barrel.
“We see prices firming further, with WTI and Brent averaging US $ 74 per barrel and US $ 76.50 per barrel, during the second half of this year, with intermittent sprints potentially testing the 80 mark. US $ a barrel in the charts, ”wrote commodities specialist Michael Tran. strategist at RBC Capital Markets.
The bank raised its 2022 average forecast for WTI and Brent to US $ 72.50 and US $ 75 per barrel, respectively, up 12 to 13 percent from current strip prices.
And there could be more potential for oil, especially this summer.
Research firm Rystad Energy notes that intensive maintenance seasons in Canada and the North Sea will help prices stay high.
“As of June 2021, Rystad Energy estimates that more than 330,000 b / d of oil and condensate supply is offline on Canada’s oil sands projects, and 370,000 b / d of offshore oil supply from Canada. North, in particular because of the maintenance of the main blending fields of the 1940s such as Buzzard and the partial maintenance at Johan Sverdrup in Norway ”, according to Louise Dickson, oil market analyst at Rystad.
In addition, the G7 pledge to donate 1 billion COVID-19 vaccines to emerging markets is also seen as bullish for oil prices, as it could accelerate the global economic recovery.
Oil traders were also encouraged by news that Iranian oil may not return to the market quickly, after the country’s foreign ministry said on Monday that world powers had “very little time” left. to resolve outstanding disputes to revive a 2015 nuclear deal, even though an agreement was in place to lift sanctions on the country’s energy sector. Iran heads to the presidential elections this week.
Supply pressures could “push the market into an overheated pricing environment during the summer months,” Rystad’s Dickson noted, but suggests the rise may be transient.
“OPEC +… has over 9 million barrels per day of spare capacity that it could put into service in a matter of months to help close any supply gap that emerges, so that a gap shock d supply may not materialize. “
The economist of the TD Bank, Omar Abdelrahman, also downplays the prospects of a “supercycle” of raw materials, but especially of the oil market.
“Energy, and in particular the oil markets, face a more uncertain trajectory,” Abdelrahman wrote in a report in May, noting that OPEC + has plenty of spare capacity to hedge against shortages, and that ‘a new deal with Iran would also result in an additional 1. -2 million bpd in the market.
But RBC’s Tran argues that OPEC’s spare capacity may not be enough to cool markets, and we’ll have to call on U.S. shale producers – the swing producers of the world before COVID-19 crushes their party – to restore balance in the market.
“Although the market has been taught that the Pavlovian response is to be nervous whenever OPEC reopens the taps or when the American shale ramps up, this period in the history of the oil market represents a paradigm shift. “Tran wrote.
OPEC’s spare capacity and the return of Iranian oil will release “artificial tension” in the market and put fundamental supply and demand issues back into play. Underinvestment on the supply side for years will also start to catch up with the market.
“In the event that the United States maintains the status quo and does not grow next year, global stocks could be nearly 400 million barrels lower, from entry to exit in 2022,” Tran noted. . “In other words, market balances will only begin to reach a state of equilibrium if US production increases by 1.2 million bpd next year. Anything below that and the sales will stay tight. And this comes after virtually all of OPEC + ‘s unused capacity has returned to the market. “ – With a Bloomberg News file