Oil prices rebounded again on Monday, with WTI shooting up more than 3% to over $61 per barrel by noon ET.
Oil prices spiked to 13-month highs last week after the Texas Freeze, but prices sagged toward the latter part of the week. But on Monday, a new price rally began, with the price of WTI spiking $1.81 per barrel to $61.05. Brent shot up by $1.73 to $64.64.
The price hike comes shortly after Goldman Sachs forecast that oil prices would climb into the $70s over the next few months, and after it became clear that U.S. oil production and refineries will take a bit of time to resume their normal level of output after the Texas Freeze knocked out oil refineries and oil production.
One would think that the market's enthusiasm for oil would be somewhat tempered given the moderately bearish news that OPEC+ heavyweights Saudi Arabia and Russia might be on the cusp of a disagreement again over the oil output agreement that the group is set to soon discuss.
As usual, Russia is eager to increase oil production, while Saudi Arabia believes a more cautious approach is warranted.
According to Goldman Sachs, Brent will hit $70 per barrel in Q2-this is a $10 increase from from its previous estimate.
The Texas Freeze knocked out as much as 4 million bpd of U.S. oil production and 6 million bpd of refining capacity last week, IHS Markit said. The production outages have created a tighter supply situation that has been absent for most of the pandemic.
And the market is latching onto that reality, sending WTI prices north of $61.
Oil prices are still below last week's levels, but by just pennies.
By Julianne Geiger for Oilprice.com
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Comments
I expect Brent crude oil price to hit $70-$80 a barrel by the third quarter of this year and average $65 in 2021 with global oil demand back to 2019 level of 101 million barrels a day (mbd) by the middle of this year.
By 2022 or early 2023 we could even see $100 oil as a result of a projected demand-supply deficit estimated between 10-15 mbd.
With rising crude oil prices, OPEC+ will have to adapt its cuts to the needs of the market to ensure that a demand-supply balance exists in the market.
Still, the oil strategies of the leaders of OPEC+, namely Russia and Saudi Arabia will diverge with rising oil prices because Russia’s economy can easily live with an oil price of $40 a barrel or less whilst Saudi Arabia and the overwhelming majority of OPEC members need an oil price higher than $80 to balance their budgets. And whilst Russia believes that an oil price ranging from $60-$65 can delay a comeback of US shale oil production, Saudi’s and other OPEC members’ motivation is prices as close as possible to $80 or even higher.
However, the bottom line is that Russia and Saudi Arabia will continue to cooperate even with rising oil prices because such cooperation has entrenched OPEC+’s position as the pillar of the global oil market and provided both of them with huge unrivalled influence over the global oil market and prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London