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Question is when, not if, oil hits triple digits

Global benchmark Brent crude has jumped 25 per cent to around $88 a barrel since the end of November. Analysts at Kamco, Century Financial and Rystad Energy are unanimous in their upbeat price projections for oil on the back of the unexpected product gap the market is facing

Sentiments in the oil market remain upbeat on surging demand, fading omicron fears, and Opec+’s inability to ramp up output with leading analysts agreeing in near-unison that it is now a question of when — not if — oil hits triple digits.

Global benchmark Brent crude has jumped 25 per cent to around $88 a barrel since the end of November. Analysts at Kamco, Century Financial and Rystad Energy are unanimous in their upbeat price projections for oil on the back of the unexpected product gap the market is facing.

The lowering of risk related to the Omicron variant further added to the positive sentiments as oil hovered around the $90-barrel mark. Several estimates now suggest oil reaching triple digit market this year as supply struggles to cope up with rising demand led by years of under investment coupled with restrained supplies from not just Opec but even non-Opec producers worldwide, Kamco analysts said.

Analysts at US investment bank Goldman Sachs are forecasting that oil prices could breach $100 a barrel this year.

“Energy traders are bracing for oil prices to reach $100 a barrel as crude demand appears to be back on track to return to pre-pandemic levels and as supplies will likely remain very tight for the rest of the year,” Edward Moya, senior market analyst at Oanda trading group, has been quoted as saying.

Energy expert Javier Blas said once oil hits $90 a barrel level, it will get traders on Wall Street excited who will eventually take oil prices above $100 a barrel. “Supply and demand fundamentals drive oil prices. Things like Opec+ production plans and US driving patterns matter the most — until they don’t,” Blas wrote in a column.

Five factors that will be driving prices in 2022 include robust demand, supply constraints, Russia-Ukraine tensions, Middle East and other geopolitical troubles, and Wall Street coming to the party.

While unplanned outages in Libya, Kazakhstan and Ecuador have added to the existing supply constraints, the overall supply situation isn’t going to get better any time soon, analysts said.

The Opec and allies led by Russia have been struggling to restore the record output cuts they implemented when demand sank during the first coronavirus wave in 2020.

The recent surge in crude oil price was also supported by higher demand for refined products. The arctic weather in the US Northeast boosted demand for diesel as a heating fuel at a time when demand from the road transportation sector was also seeing a surge. Gasoline prices also surged across the globe due to increased mobility.

Analysts at Kamco Invest said factors that also contributed to the price surge included limited supply quotas for exports from China, fuel switching from natural gas to diesel for heating oil and electricity generation, a broader commodity rally globally as well as untapped demand in several oil end markets like jet fuel. In addition, the dollar has broadly shown a downward trend against a basket of currencies after peaking in November-2021.

The International Energy Agency raised its demand estimates by 200,000 barrel per day for 2022. World oil demand was seen rising by 5.5 million barrel per day in 2021 and by 3.3 million barrel per day in 2022, the IEA said, surpassing its pre-pandemic levels by 200,000 barrel per day to 99.7 million b/d. However, in its latest short term energy outlook report, the US Energy Information Administration (EIA) has forecasted an increase in oil inventory levels in the near term. And ,as a result, the agency has forecasted a decline in oil prices in 2022 and 2023 from 2021 levels.

Oil prices witnessed continued volatility during 2021 with Brent spot crude prices trading in the range of $85.8 per barrel and $50.4 per barrel. Crude oil peaked during October-2021 after countries across the globe expected relief from the Covid-19 pandemic post the delta variant and a marathon vaccination effort.

However, prices declined towards the end of the year as new variants emerged and restrictions were placed once again in several countries in order to contain the spread of the Omicron variant. Prices started rising at the close of the year also gaining support from the record highs reached in financial markets indicators. Gains were backed by reopening of economies and expectations of faster economic growth in the near term.

— issacjohn@khaleejtimes.com