The global oil market has been especially volatile this year, but the United Arab Emirates’ decision to cease its OPEC membership provided another jolt. Today, we dig into why the UAE chose this path and the potential implications for the global market and U.S. producers.
Well, it took a hot war in Europe, constrained capital spending by U.S. producers, continued restrictions in OPEC+ production, and ongoing economic recovery from a global pandemic, but it’s finally happened: Brent shot past $100 and even $105/bbl Thursday before dropping in the last hour of trading to settle a hair above $99. Even WTI touched $100/bbl briefly. The market has been buzzing about the prospects for the breach of this threshold since October, coming along with waves of speculative trades, a dozen false starts, and countless pundit predictions. Now that it has happened, what does it mean — other than higher gasoline prices, of course? In the good ole days, high prices would spur production growth that would help bring prices back down — eventually. But this time, things are different. Which begs the #1 question: Will triple-digit oil prices last? In today’s RBN blog, we’ll consider these issues in the context of historical price behavior and what we might expect this time around.
The November 4 decision by the Organization of the Petroleum Exporting Countries and its collaborators — collectively known as OPEC+ –– to stay the course on crude oil production surprised few and disappointed many. Officials from leading oil-consuming nations, including the U.S., Japan and India, want the group to relax its production restraint by more than the scheduled 400 Mb/d in December. They see extra crude supply as an antidote for high prices that have been hampering recovery from the global economic slump caused by the COVID-19 pandemic. But OPEC+ leaders made clear that they’re in no mood to accelerate their phase-out of production cuts. They know the market pressures now elevating crude prices won’t last forever and can change unexpectedly. They also face internal strains that might weaken the quota discipline that has kept the group’s supply management intact, despite the occasional upset, for nearly five years. One of those strains is the number of OPEC+ participants already producing as much crude as they can while falling short of existing ceilings — a number that grows as the ceilings rise. Today’s RBN blog looks at oil-market expectations underlying OPEC+ members’ cautious approach and at the growing divide among those unable to keep up with output targets and the relatively few but volumetrically overpowering counterparts with capacity to spare.
Crude oil prices continued to increase this week, with WTI at Cushing closing Tuesday at $84.65/bbl, the highest level since October 13, 2014. The rise in crude since the spring of 2020 has been swift and almost relentless, interrupted only by pauses at $40, $60, and $70, when the market took breathers and seemed to say to itself, “We’re not done yet, right?” The question now is, can anything stop WTI from topping $90 and yes, the magic $100 mark — something that few would have predicted we’d see again so soon . The reality is, there are many factors driving crude prices higher but few holding prices down. In today’s RBN blog, we discuss what’s driving the rapid run-up in oil prices, whether $100/bbl WTI is a sure thing, and what happens if — when? — oil hits triple digits.
As the outlook for crude oil in 2022 came into three-dimensional view this month, the market’s steadying mechanism managed to right itself again after another wobble. The Organization of the Petroleum Exporting Countries (OPEC) took its first formal look at next year in its July Monthly Oil Market Report (OMR), becoming the third of three widely watched prognosticators to do so. Among the other two, the International Energy Agency (IEA) began projecting 2022 oil-market data in its June Oil Market Report, and the intrepid U.S. Energy Information Administration (EIA) took its first analytical shot at next year way back in January in its Short Term Energy Outlook. The important third dimension that OPEC gave to the 2022 oil-market picture arrived on July 15 after two weeks of worry about whether production restraint by most of the group’s members and cooperating countries would survive. On July 18, though, the internal squabble driving that concern ended in a compromise that will result in production quota increases for several OPEC+ members. The 2022 projections by OPEC, IEA, and EIA, not to mention worry-driven elevation of crude oil prices prior to the compromise, make clear that the market needs OPEC+ to continue the orderly unwinding of its production cuts. In today’s blog, we compare the three forecasts and look at how the latest adjustment to OPEC+ supply management will affect the market.
Crude oil is demonstrating yet again its penchant for what markets hate most: surprise. Last month, the Organization of the Petroleum Exporting Countries (OPEC) and collaborating governments were carefully easing the production cuts with which they steered the market through an oil-demand crisis caused by the COVID-19 pandemic. Demand was recovering as economies reopened after being locked down during most of 2020 and early 2021. And the near-month futures price for light, sweet crude on the New York Mercantile Exchange (NYMEX) — having closed below zero for the first time ever on April 20, 2020 — rose above $70/bbl for the first time since October 2018. Until mid-June, the market’s main concern was the potential for a supply surge if Iran escaped sanctions by agreeing with the U.S. to again suspend nuclear development. Surprise! Only days after his election as Iranian president on June 18, Ebrahim Raisi announced new limits on what his government would negotiate regarding nuclear work and said he would not meet with U.S. President Joe Biden. Suddenly, new oil supply from Iran looked less imminent than it did before Raisi’s election. Then July arrived. Surprise! OPEC members and nonmembers, collectively known as OPEC+, which had been voluntarily limiting production ended an important meeting without agreeing, as had been expected, to extend their phasedown of supply restraint. Suddenly, the market had to wonder whether the result would be too little supply or a price-crushing production spree if OPEC+ discipline collapsed. In today’s blog, we examine how these developments relate to each other in the twin contexts of a rebalancing oil market and of past oil-supply management.
After the crude oil price crash in the spring of 2020 and flat-at-$40/bbl oil last summer and early fall, prices for both WTI and Brent have been increasing steadily the past several months, and now stand at a kind-of-remarkable $75/bbl. This rise has been driven by a combination of demand recovery and supply restraint from both OPEC+ and U.S. producers — which begs the questions: what’s next on the supply and demand fronts, and how much more will oil prices increase from here? There’s been a lot of chatter lately that we might see $100/bbl crude prices sometime soon, and there are a lot of interested parties — many of whom don’t normally see eye-to-eye — who, for one reason or another, see their interests converge around the $100/bbl mark. The only problem is, it’s not showing up in the forward curve. Today, we look at the potential for “Benjamin-a-barrel” oil and how it might play out.
Much like the world at large, the crude oil market has been healing from the ravages of COVID-19. Overall, market conditions are far better than they were in April 2020, when global oil consumption, crushed by pandemic-related lockdowns, slumped to 80.4 MMb/d, a 17% decline from the start of last year and a 20% drop from April 2019. Demand has been rebounding in fits and starts for a full year now — recovering from downturns is what markets do. But this recovery has gotten a big assist: 10 members of the Organization of the Petroleum Exporting Countries (OPEC), acting in concert with 10 non-members, have restrained crude oil production in a program unprecedented in scale and duration. Now, oil prices are high enough to revive activity by some producers outside the so-called OPEC+ group. For at least the rest of this year, in fact, the market looks like a steel-cage match between crude supply subject to coordinated management and supply governed only by raw market signals. Today, we look at oil-market projections from three important agencies and estimate demand for oil not supplied by the OPEC+ exporters.
