A lack of investment in oil supply in recent years is limiting the ability of oil-producing countries to boost production significantly, leaving the oil market without an “immediate solution” to the high oil prices, according to OPEC’s rotating president.
Bruno Jean-Richard Itoua, Congo’s minister of oil and gas, holds the rotating presidency of OPEC for this year and spoke about the state of the oil market at an energy conference in Riyadh, as carried by Reuters.
Oil prices topped $90 per barrel early this month and continued climbing amid geopolitical tensions with the Russia-Ukraine crisis and continued inventory drawdowns that tighten the market, while OPEC and its partners in the OPEC+ alliance struggle to pump as much crude as their quotas under the pact allow.
Early on Wednesday, before the EIA weekly inventory report, Brent traded higher at above $94, and WTI was over the $93 per barrel mark, following a slump on Tuesday due to signs of possible de-escalation in the Russia-Ukraine standoff.
Geopolitics aside, the market is tight, analysts say, and many of them see oil hitting the $100 per barrel level within weeks or months amid rebounding demand and OPEC+ struggling to raise production as much as intended.
The gap between OPEC+ output and its target levels surged to as much as 900,000 barrels per day (bpd) in January, according to estimates from the International Energy Agency (IEA).
Earlier this week, the IEA’s executive director Fatih Birol said that OPEC+ producers need to pump more oil to close the widening gap between nameplate production quotas and actual output.
The laggards in the OPEC+ oil output targets should look to produce more to balance the tight market, Birol said at the Egypt Petroleum Show in Cairo on Monday, as quoted by Reuters.
If OPEC+ continues to fail in delivering its oil production targets amid rising demand and inventories at multi-year lows, oil prices will remain under upward pressure and are set for more volatility, the IEA said in its monthly report published last week.
By Tsvetana Paraskova for Oilprice.com
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This has translated into a shrinking global spare oil production capacity, widening gap between demand supplies and an accelerating decline in global oil inventories which coupled with the most bullish global oil demand since 2014 are leading to the current surge in crude oil prices.
Moreover, the global oil market has already entered a super-cycle phase that could last up to ten years and could take Brent crude oil price to $120 a barrel in the next few years.
The gap between OPEC+ output and its target levels is reported to have widened to estimated 900,000 barrels a day (b/d) in January. Still, OPEC+ is doing its utmost to keep the market balanced. OPEC+ has enough spare capacity to keep the oil market balanced in both 2022 and 2023. Beyond that, it urgently needs to add more capacity. This means it has to start investing heavily in expanding capacity immediately as it normally takes up to 5 years before investment reaches fruition.
A Brent crude oil price ranging from $100-$110 a barrel could be good for the global economy as it invigorates the three chunks that make up the global economy: (i) global oil investments; (ii) the global oil industry and (iii) the economies of the oil-producing countries. If the oil price exceeds the tolerance level of the global economy, it will let the world know in no uncertain terms. A case in point is when Brent crude hit $147 a barrel in 2008 and was followed by a global financial crisis that almost brought the global economy to the brink of collapse.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London