But the balance appears to be delicate, with a deficit around the corner, according to most analysts. It also goes counter to what OPEC has been warning about for years now: underinvestment in new production that would ultimately compromise the global supply situation.įor now, it appears the market is reasonably well supplied despite the Saudi and Russian cuts. This forecast goes counter to observations made by Equinor's chief economist, who noted that tight production capacity globally was part of the reason why oil may soon top $100 per barrel. The Norwegian energy consultancy served a surprise this week by forecasting that oil prices are about to drop sharply thanks to ample supply and a peak in oil demand growth. Meanwhile, forecasts of peak oil demand continue to come in, the latest from Rystad Energy. This is the key issue at stake: can the global economy keep chugging along even as oil rises close to $100 or even above it, or will there be a fallout that would, ultimately, destroy a lot more demand for oil?įor now, it seems the economy keeps chugging along, accompanied by persistent concerns about interest rates, recession, and consumer spending. So, as before, what they are doing is a fine balancing act that can keep prices high enough for producers but without killing demand, at least not too much of it. They are aware of the nature of the cure for high oil prices. OPEC+ as a whole or Saudi Arabia and Russia are not interested in watching oil prices soar sky-high. Indeed, Eirik Waerness made an excellent point that others have made in recent days, too. I don't think they are aiming for that price." The latest to join the $100-per-barrel club was Norway's Equinor, whose chief economist predicted that "I wouldn't exclude that we can have prices reaching $100 a barrel," but added that "that wouldn't be because OPEC would like it to reach there. This seems to be where most observers see oil heading anyway. Despite his warnings about prices, India's oil minister this week said the country "will manage" even if oil tops $100 per barrel. India's oil demand is also quite robust, despite the government's concerns about prices, prompted by the fact that the country relies on imports for over 80% of its oil consumption. "China's demand for oil has been supported by record internal mobility, as indicated by robust congestion and domestic flight data," Goldman Sachs commodity analysts recently said, noting the country's booming demand for copper, driven by the low-carbon energy industries. Meanwhile, oil demand in China is "booming". It could have been just one of those years. It could have been inflation, which remains elevated despite consistently high consumer spending. demand, it was not prices that destroyed demand-oil was well below $90 per barrel during summer driving season. This, however, would depend on the causes of demand destruction. Only, according to him, this growth needs to be stronger to offset the declines in demand elsewhere. China, India, and Brazil, Lee notes, are all witnessing rising oil demand. Yet while demand may weaken in the U.S., it is rising in other parts of the world. Unsurprisingly, that build was one of the factors that weighed on prices this week. In addition, the latest EIA inventory report showed a substantial build in gasoline inventories, reinforcing a perception of lukewarm demand for fuels. In the United States, gasoline consumption this driving season was 600,000 bpd below the average for 2019, the last pre-pandemic year with what is assumed to be normal demand. According to Bloomberg's Julian Lee, demand destruction is already underway.
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