Oman’s energy minister said the OPEC + group did not want the price of oil to rise to $ 100 a barrel, prompting further easing of the group’s production quotas. Actual production is low
Development of the price of oil
The price of oil continued to rise in the last week: the price of BRENT oil rose to about $ 86.06 per barrel at the end of the trading day on 14/01/2021 and the price of a WTI barrel rose to about $ 83.82. This increase occurred despite the spread of the American variant which led to the tightening of restrictions in a number of countries, with an emphasis on China where the administration is pursuing a “zero corona” policy leading to local closures resulting in declining demand. This, along with the recovery of Libya’s oil production, following the completion of maintenance work on the country’s largest oil pipeline damaged following the activities of local militias, as well as a recovery in Kazakhstan’s oil production which was damaged following the civil riots.
Global supply
Continuing with the above, Libya’s oil exports have remained weak in the past week, despite the completion of maintenance work on the country’s largest oil pipeline when according to market estimates, the country has even reached agreements with local militias that have harmed the oil field. This weakness in exports is due in part to the weather which has disrupted the activity of seaports from which the country exports oil. However, this impairment of activity is expected to be temporary.
Oman’s energy minister said the OPEC + group did not want the price of oil to rise to $ 100 a barrel, prompting further easing of the group’s production quotas. However, the actual production of the group members is lower than the reductions in the production quotas due to the difficulty of some of the members to increase their oil production. In doing so, it appears that the OPEC + group will make its decision to continue easing production quotas in February as well. Saudi Arabia and the United Arab Emirates are expected to increase their oil production more than other companies in the group, as they have not yet exhausted their production capacity.
According to the EIA, the upward trend in oil shale drilling activity is expected to increase U.S. oil output by 2023 to about 12.41 million barrels per day. U.S. oil reached 12.3 million barrels a day. However, the increase in output is expected to be gradual and the EIA has reduced its estimate of U.S. oil production by 2022 to about 11.8 million barrels per day.
The US oil inventory decreased in the week ending 7/1/2022 by about 4.6 million barrels and the inventory level reached about 413 million barrels, a level that is about 8% lower than the average level in this period in the last five years. This decrease occurred due to a decrease in output US oil from about 11.8 to about 11.7 million barrels per day and despite the increase in net imports due to an increase in gross imports along with a decrease in exports, and also despite a decrease in the utilization rate of refineries to about 88.4%. The oil inventory in the Cushing Reservoir also declined this week, after rising in recent weeks in contrast to the downward trend in total oil inventories in U.S. reservoirs.
Global demand
Demand for car fuel in the U.S. fell in the week ending Jan. 7, from about 8.2 to about 7.9 million barrels a day. Voluntarily on social distance, which reduces the demand for fuel used for transportation.In our estimation, with the current wave of morbidity, demand is expected to return to the range of 8.9-9.6 million barrels per day. The continued rise in morbidity is leading to tightening of restrictions in a large number of countries, which could lead to a certain and temporary decline in demand for jet fuel in the United States.
Demand for oil products in India increased during 2021 according to market estimates by about 3.7%, after declining in 2020 for the first time in two decades following the long closure that was in the country. This increase is due, among other things, to a change in consumer preferences, some of whom have switched from using public transport to private transport, due to the fear of communicating with the corona virus. However, the tightening of restrictions in recent weeks, against the background of the spread of the Omicron variant, has led to a decrease in traffic on Asian roads. This decline in traffic was felt mainly in India and China, where restrictions were tightened in eruption areas, which is expected to lead to a decline in fuel demand in the near term.
Expect the medium term
The OPEC + Group is expected to meet its decision to increase production quotas in February, in accordance with the decision made at its last meeting. Actual output, however, is expected to increase less than the increase in production quotas, as some group members have exhausted their production capacity for the time being. Saudi Arabia and the United Arab Emirates are expected to be the main beneficiaries of the increase in production quotas, as they have not yet exhausted their production capacity.
Should the spread of the corona virus variant omicron variant lead to further tightening of restrictions, which will reduce energy demand and destabilize the market around the current price level, the group could overturn the decision to further increase oil production. This is in line with Saudi Arabia’s current strategy, which allows it to respond surprisingly to market developments, without giving any preliminary hints.