Oil Up Again On OPEC Disappointment As $150 Prices Are Forecast

Meanwhile, Western Canadian Select takes a nosedive due to Russia: File Image: Pixabay

Negative fallout from the Organization of the Petroleum Exporting Countries' (OPEC) plan to minimally increase output continued on Friday, and this combined with expectations of an even tighter market as China eases its Covid lockdowns caused oil prices to rise by almost 2 percent.

Brent rose $2.11, or 1.8 percent, to settle at $119.72 per barrel, while West Texas Intermediate advanced $2, or 1.7 percent, to $118.87; for the week the commodity posted a sixth straight weekly gain of 3.3 percent.

As usual, analysts disagreed about the effect of OPEC's production hike: Paul Sankey, CEO of Sankey Research, said the market sees oil supply issues persisting due to OPEC's meagre 648,000 barrels per day (bpd) increase in July and August and remarked that "The whole system of OPEC has kind of broken down right now."

By contrast, Jim Ritterbusch, president of Ritterbusch and Associates, remarked, "Yesterday's OPEC+ decision and the ongoing acceleration in SPR releases is maintaining crude availability at an ample level, especially with demand from the refiners appreciably downsized from a few years ago."

Fereidun Fesharaki, chairman at FGE, took a slightly different stance by suggesting that it was unreasonable for pundits to expect OPEC to unleash millions of barrels to take care of the self-sanctioning of Russian oil by many buyers, especially in Europe; he added that unless Iranian supplies (which could immediately push prices down by $10 to $15 per barrel) return due to a nuclear deal with the U.S., the shut-in of Russian oil will keep prices above $100 per barrel.

And while Dan Pickering, chief investment officer at Pickering Energy Partners, pointed out that demand gets eroded when West Texas Intermediate is above $115 per barrel, Sankey said demand doesn't seem to be responding to higher prices yet: "Everybody is flying more and driving more, everyone's sort of immune to it…it's a crazy situation and our forecast is $110 to $150 Brent through the summer and beyond."

Unsurprisingly, oil's market structure continues to exhibit a strong bullish pattern on Friday: Brent's prompt timespread was $2.60 per barrel in backwardation compared with $2.73 at the close on Wednesday.

Meanwhile in other oil related news, another example of how Europe's reaction to the Russia/Ukraine conflict has upended the market is Canada, whose Western Canadian Select's discount to benchmark WTI grew $1.70 to $20.80 per barrel in Alberta on Friday, the widest in almost seven months.

Bloomberg reported that the growing discount "has muted the benefits to oil sands producers such as MEG Energy Corp. and Cenovus Energy Inc. from the surge in benchmark oil prices above $100 per barrel."