Doubt Over OPEC's Ability to Deliver Volume Boosts Oll Prices

by Ship & Bunker News Team
Wednesday January 5, 2022

The question of whether the Organization of the Petroleum Exporting Countries (OPEC) and its allies are able to increase production as planned was said to be the main factor that caused another rise in oil prices on Wednesday.

Futures in New York rose 1.1 percent after a Bloomberg survey showed that OPEC in December added just 90,000 barrels per day (bpd) in December; concern over supply constraints was exacerbated by U.S. stockpiles falling for a sixth straight week, by 2.14 million barrels last week, according to the Energy Information Administration.

Brent ended up 80 cents, or 1 percent, to $80.80 per barrel, while West Texas Intermediate closed up 86 cents, or 1.1 percent, to $77.85.

Matt Sallee, a portfolio manager at Tortoise, said, "The more months we roll forward and OPEC is unable to demonstrate adding 400,000 barrels a day of supply, it could start to spook the market."

Indeed, Amrita Sen, co-founder of Energy Aspects Ltd., predicted that OPEC+ will increase output by 250,000 bpd next month.

And given that recent disruptions in Ecuador, Libya, and Nigeria totalled close to 1 million bpd, analysts are now monitoring OPEC member Kazakhstan, whose president accepted the government's resignation on Wednesday after increases in fuel prices caused clashes between protesters and police.

However, Ron Smith, senior oil and gas analyst at BCS Global Markets, said disruption to the nation's oil industry could be significant only if it lasts for an extended period of time.

Supply tightness corresponded on Wednesday with speculation on how high oil prices could climb, and Scott Sheffield, CEO of Pioneer Natural Resources Co., said during a Goldman Sachs Group energy conference that he was bracing for oil to range from $75 to $100.

Goldman Sachs warned last month that oil could top the $100 mark in 2023 thanks to record demand; Pioneer meanwhile closed out almost all of its hedges for this year, another sign that it anticipates high crude prices.

Still, for all the new-found concern about market tightness (coming on the heels of worries that omicron would ruin demand recovery),  Ed Morse, global head of commodities research at Citigroup, told media that the planned production increases will lead to a supply surplus at the end of 2022: "That's an awful lot of oil and it's a couple of million barrels a day higher than supply," he said.

Also, in the shorter term, fear over omicron may affect supply/demand balance, according to Caroline Bain, chief commodities economist at Capital Economics.

She said, "Implied product demand – particularly for gasoline – slumped" last week in the U.S., "suggesting that the public were cautious about travel in the wake of surging cases of the omicron variant.

"These fears are likely to persist for a few weeks yet."