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 $ 77.78 per barrel at the end of the trading day on 31/12/2021 and the price of a WTI barrel rose to about $ 75.21. This increase occurred despite the spread of the Americon variant in Europe and the United States, which began to tighten restrictions in some countries and even closed in a small number of countries.
Global supply
The OPEC + group is expected to meet on Tuesday. Group members are not expected to seek to change the decision made at the previous meeting regarding January 2022, so the group is expected to continue to increase its oil production also in January, especially in light of the rise in oil prices supported by strong demand. The group will discuss further increases in oil production in February. In our opinion, the group is expected to continue to increase oil production also in February, against the background of the level of demand, while reserving the possibility to respond immediately if it turns out that the increase in morbidity leads to a significant tightening in many countries while hurting global demand. However, the group opposes calls from the US to accelerate oil production and the increase in production is expected to continue gradually according to the group’s plan.
The number of oil drilling rigs operating in the US continues to rise, but is still very low relative to current oil prices, which may make it difficult to maintain and increase the high level of U.S. oil production. Of energy companies is expected to grow during 2022, but at a relatively low rate as companies are expected to focus more on maintaining greenhouse gas emission targets.
The US oil inventory decreased in the week ending 12/24/2021 by about 3.6 million barrels, and it reached about 420 million barrels, the lowest level since the end of September 2021. This decrease was supported by a high utilization rate of the refineries which increased slightly to about 89.7% and it occurred despite the increase in net imports, which was mainly due to an increase in gross imports, more than the increase in exports.On the other hand, oil inventories in the Cushing reservoir continued the recovery trend that began from the second half of November and rose to about 35 million barrels.
Global demand
Demand for fuel for cars in the US rose in the week ending December 24 to about 9.7 million barrels a day and it approached the record high of about 10 million barrels a day in the summer. The house is increasing demand for fuel used for transportation, however, these strong demands are not expected to remain so in the coming weeks and we estimate that demand will return later this month to the range it was in the last months of 8.9-9.6 million barrels per day, especially against the sharp rise in Tightening restrictions and voluntarily maintaining social exclusion of some households, which is expected to reduce demand. Demand for jet fuel also rose to 1.6 million barrels per day. On international air traffic, the weight of fuel consumption for aircraft in the US is relatively low compared to the fuel used for domestic flights, which is expected to lead to some, but not large, decline in demand for jet fuel in the US.
The EIA estimates that the increase in morbidity due to the spread of variant Omicron is expected to lead to a decrease in demand for petroleum distillates. However, by 2022 demand is expected to rise again and even return to a global level that was pre-spread of the corona virus of about 99-100 million barrels per day. The EIA also estimates that the price of oil will fall in early 2022. This is against the background of the US administration’s efforts to increase the world oil supply and lower the price of fuel to the US consumer in order to reduce inflationary pressures there.
The natural gas economy
The price of natural gas in the United States (Henry Hub) has risen slightly again in the last week, after previously falling from its peak price in October 2021. This is against the background of the winter season when demand for natural gas, which is also used for domestic heating, rises alongside gas exports. A natural of the US to Europe dealing with gas shortages. However, the level of natural gas inventories in U.S. reservoirs is high, and has recently risen to a higher level than the average level at this time of year in the last five years, which is expected to offset a significant increase in the price of natural gas.
The price of European natural gas (TTF) has been very volatile in the last month. This is due to uncertainty regarding the regulatory approvals for the operation of the Russian gas pipeline Nord Stream 2 which has led to a reduction in natural gas exports from Russia to Europe. In the last week of December, European natural gas prices have fallen due to the supply of liquefied natural gas (LNG) from the United States and other countries. Stream 2. This move is expected to lead to a reduction in the price of European natural gas and help lower the price of US natural gas, due to the decline in European demand for American liquefied natural gas.
Expect medium-term
The OPEC + group is expected to increase oil production in January, in line with a decision made at their last meeting, and it is also expected to continue to increase oil production in February, as long as the oil market remains stable and global demand is strong. However, if the proliferation of the corona virus variant omicron variant tightens considerably, which will reduce energy demand and destabilize the market around the current price level, the group may overturn the decision to further increase oil output. This is in line with Saudi Arabia’s current strategy, which allows it to respond surprisingly to market developments, without giving any preliminary hints.
The EIA estimates that the rise in morbidity due to the spread of variant Omicron is expected to lead to a decline in demand for oil in the short term, but by 2022 demand is expected to strengthen and rise to return to pre-Corona virus demand levels. At the same time as demand strengthens, U.S. oil production is expected to rise gradually as well during 2022 and reach about 12.1 million barrels per day in the last quarter of 2022.
The increase in liquefied natural gas exports from the US to Europe led to a slight increase in the price of gas in the US (Henry Hub) and on the other hand to a significant decrease in the price of European gas (TTF). This is after the price of natural gas in Europe rose sharply several months ago due to a shortage in the market, which was exacerbated by the decline in Russia’s natural gas exports to Europe due to the failure of the Russian natural gas pipeline Nord Stream 2. The severity of the coming winter. Having an impact on the volume of gas consumption. Given the low flexibility of gas demand in Europe in relation to price, and at the same time the volume of domestic output in Europe is relatively limited and constant, the solution to natural gas shortages in Europe is mainly based on imports, whether from Russia or the rest of the world. The gas purchased from Russia.
In spite of the various difficulties, Russia will operate the Nord Stream 2 gas pipeline sufficiently to Europe, a step that is very important for Russia’s economic activity, this will contribute to a further reduction in the price of European natural gas. The fall in the price of gas in Europe could also lead to a drop in European demand for liquefied natural gas (LNG) in the US and in view of the high levels of inventories, this may contribute to the fall in US prices. In addition, the operation of the Nord Stream 2 gas pipeline is expected to prevent the transfer of natural gas demand to oil, so this move may have a moderating effect on oil prices as early as 2022.
Oil futures indicate a certain drop in price in the first half of 2022 and a further drop during 2023. This is probably due to expectations that oil supply will increase in 2022, and there may even be some supply, alongside fears of the Corona virus continuing to affect economic activity.
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