Welcome to Business Outlook
Related Articles
Whether fuel pump prices fall in 2022 depends on two groups of producers who are struggling to increase oil output in the wake of the pandemic: OPEC and its allies and US shale firms.
The global oil industry’s slow response to the surging demand in 2021 has contributed to soaring energy costs and inflationary pressures worldwide. As the economy recovers and populations resume road, rail and air travel, global oil demand has nearly rebounded to pre-pandemic levels.
Supply has not recovered so fast – so to keep up with demand, the industry is burning through oil kept in storage.
Benchmark oil prices have surged to multi-year highs over $86 a barrel, and some economists warn crude could surpass $100 a barrel, threatening the recovery.
The International Energy Agency (IEA) expects the roughly 100 million barrels per day (bpd) market to flip into surplus in the first quarter next year, and for supply to outpace demand by 1.1 million bpd, taking some heat out of prices. That oversupply could rise to 2.2 million bpd in the second quarter, the energy watchdog forecasts.
Those projections, however, depend on OPEC and its allies increasing output at 400,000 bpd per month, as the group known as OPEC+ slowly unwinds cuts it was forced to make during the pandemic.
But the IEA’s monthly report on Tuesday showed OPEC+ is nowhere near its targets: it produced about 700,000 barrels per day (bpd) below those levels in September and October.
That is largely due to top African producers Nigeria and Angola, whose maintenance and investment problems are likely to weigh on output next year.
If that underproduction continues, it could wipe out much of the surplus in the first quarter and keep markets tight for longer. The IEA hiked its 2022 forecast for average prices to US$79.40 a barrel, even as it said higher supply could give some reprieve.
Commodities trading giant Trafigura warned on Tuesday of a “very, very tight oil market” as declining production investment, partly due to an industry transition to greener energy, adds to price pressure.
The United States and other big energy consumers have asked OPEC+ to increase output more quickly, but the group has refused due to concern coronavirus may again sap demand during the northern winter.
The market is now looking to the US shale industry, which has provided most of the non-OPEC output increase over the past decade.
“There’s one element where you could probably further increase capacity, which is shale in the US,” said Marco Dunand, chief executive of merchant Mercuria Energy Trading, at the Reuters Commodity Trading Summit this week.
The IEA expects a massive 480,000 bpd rise in US crude and natural gas liquids (NGLs) output in the second quarter of 2022, and by 1.1 million bpd for all of 2022.
The US Energy Information Administration’s near-term expectations are lower, with overall crude and NGLs output set to rise by 220,000 in the second quarter.
(TDS)
