Oil prices could spike to $150 per barrel, especially if the situation with Russian oil supply worsens amid sanctions from the West and self-sanctioning from buyers, Joseph McMonigle, Secretary-General of the International Energy Forum (IEF), told Bloomberg on Tuesday.
Current IEF projections point to an impact of around 1.5 million barrels per day (bpd) on Russian oil supply after Putin invaded Ukraine, according to McMonigle.
Yet, it will probably take another two weeks to see hard data on the actual impact of how much Russian barrels have come off the market, he added.
“We’re in store for a lot of volatility and higher prices over the next several months. I think you could see big fluctuations and $150 a barrel is possible.” McMonigle told the program ‘Bloomberg Daybreak: Middle East.’
$150 oil may not be sustainable, but all will depend on what happens to Russian oil supplies, he added.
The IEF has not seen hard evidence that the skyrocketing oil prices have already led to demand destruction globally, according to McMonigle.
He estimates that global oil demand is back up to 98 percent of pre-pandemic levels, but supply is back up to only 95 percent of pre-COVID levels. While most people would think that the gap in supply is attributable to OPEC+ and some of its members not being able to pump to their quotas, half of the supply gap is actually from the United States. Capital discipline and supply chain constraints prevent American oil producers from pumping as much as they did just before COVID hit two years ago, the IEF’s McMonigle told Bloomberg.
Analysts and investment banks are not ruling out major disruptions to Russian supply, and are not ruling out $150 a barrel oil this year, either.
“If disruption to Russian volumes lasts throughout the year, Brent oil prices could exit the year at $185 bbl, likely leading to a significant 3 mbd drop in the global oil demand. Even if shale production responds to the price signal, it cannot grow by more than 1.4 mbd this year given labor and infrastructure constraints,” J.P. Morgan Global Research said earlier this month.
By Tsvetana Paraskova for Oilprice.com
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He claims that Russian oil supplies could worsen amid sanctions from the West and buyers shunning Russian oil for which he has not a single proof of evidence. Only a small reduction of Russian oil exports could be affected from the damage that freak weather conditions could have caused to the Caspian oil pipeline. But this is a temporary hiccup. Russian oil exports are going nowhere except to the global oil market.
Still, a Brent crude oil at $150 a barrel is possible only if Russian oil exports of 8.0 million barrels a day (mbd) were hindered from reaching the global oil market by military means. This is impossible because the alternative is a nuclear war.
The tightening oil market is the result of underinvestment in oil and gas since 2019 resulting in a shrinking global production capacity including OPEC+ and fast-depleting international oil inventories.
The Secretary-General of the IEF makes another faulty assumption by attributing the tightness in the market to supply gap from US shale oil production. He is again wrong. Shale oil is a spent force. The inability of shale producers to raise production meaningfully has little to do with capital discipline and far more to do with the fact that the rich and sweet spots in the shale plays have already been used forcing drillers to move to costly and less productive spots. Another reason is that well profitability has been declining adding to costs of production. The maximum shale production could add this year is 200,000-300,000 barrels a day (b/d) over the EIA's claimed average of 11.0 million barrels a day (mbd) in 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London