OhFinished Philosophy is rarely mixed. But when David Fife of Argus Media, a publisher, the Organization of Petroleum Exporting Countries (OPEC) And its allies are a “platonic ideal” – more of a theoretical model than a practical guide – he has a sense of self-doubt that is now engulfing the energy market. Every month since July, the group has agreed to increase its production by 400,000 barrels (bpd) per day. But experts cannot decide whether it is too low or too high – and whether the target is too high.
The cartel’s latest meeting was held on February 2 against the backdrop of heightened fears of a Russian invasion of Ukraine (Russia, the world’s second-largest oil exporter, a member of the expanded cartel, which OPEC +) Just a week ago, the price of Brent crude rose above ৯ 90 a barrel, the highest level in seven years. The alliance has again promised to increase output, at normal levels. This has calmed the market a bit. The question is what will happen next.
Many Wall Street analysts have raised their oil price forecasts above 100 100 a barrel this year. The war in Ukraine, they say, could exceed $ 120. Conflict will probably not physically disrupt supplies. In contrast to the gas it supplies to Europe, Russia exports most of its oil by sea. Instead, prices could rise for fear of possible sanctions on trade.
Excluding geopolitics, the bull case relies on revived claims. The International Energy Agency estimates that oil consumption will return from its current level of about 97m bpd to 100m bpd – by the end of the year, even before global aviation is fully recovered. Damien Kurvalin of Goldman Sachs, a bank, said consumers switching from gas to oil (whose price is skyrocketing in Europe) has increased demand by up to 1m bpd, leading to “critically low inventory levels”.
Supply tight, too. Of Paul Sheldon S.AndP Global Platts, a data firm, estimates that global surplus production is only 2.6m bpd. And pledged by OPEC + Can’t count. Many members have struggled to increase output due to low investment and covid-related barriers. BloombergNEFA research firm notes that in December the club produced 747,000 barrels a day less than its allowable quota.
The beer case depends on patience, a Persian recovery and a Permian boom. If Russian exports are not stopped, the effects of geopolitical tensions should dissipate by summer. In the meantime, the United States is likely to raise interest rates, increase cooling and increase oil demand, such as surplus supplies OPEC+ Market hits. Meanwhile, the resumption of Iran’s nuclear deal looks better than at any time since 2017, when it was broken. The corresponding revocation of the ban could leave a further 1m bpd.
The real wild card is the shell. Until 2014, when OPEC By organizing oil-price crashes, shale drillers have provided cheap funding to boost output, making America the world’s largest oil producer. But investors, who have probably lost $ 300 billion, are now demanding higher returns.
Oil officials have spoken of tight capital discipline. Yet high prices are hard to resist. Baker Hughes, an oil-services company, counted 610 active rigs in the U.S. at the end of January, up from 226 more than a year earlier. BNEF Predicts that output in the Permian Basin may increase by 1m bpd by the end of 2023; ExxonMobil, an oil major, plans to increase output there by a quarter this year. As the power philosophers say, the best remedy for high prices is high prices. 3
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This article is published under the heading “A Slippery Patch” in the Finance and Economics section of the print edition.