Oil Down Again On OPEC Surplus Warnings As Analysts Disagree On Market Outlook

But lack of investment seems to ensure tight supplies in the near-term, says Vitol: File Image/Pixabay

Crude trading on the U.S. Thanksgiving Thursday ended in more minimal losses for two key benchmarks, in the aftermath of the Organization of the Petroleum Exporting Countries (OPEC) warning that the effort of several countries to release supply from their emergency reserves would swell an inventory surplus next year.

OPEC earlier stated that if the U.S., Japan, and four other countries release 66 million barrels of oil over a two-month period as planned, the excess in world markets would expand by 1.1 million barrels per day (bpd) in January and February to 2.3 million and 3.7 million per day respectively.

Andrew Lipow, president of Lipow Oil Associates, noted that "Given the holiday in the U.S. and with (trading) volumes light, I think the market is digesting the releases we've seen announced, and wondering what reaction we might see from OPEC+."

Tamas Varga, an analyst at brokerage PVM, remarked, "The move by the six consuming nations will surely result in aftershocks as the fault lines between OPEC+ and major consuming countries become ever more visible."

West Texas Intermediate on Thursday fell 35 cents at $78.03 per barrel when trading halted for Thanksgiving; Brent settled 3 cents lower at $82.22 per barrel.

OPEC's argument for not increasing its output – which provoked the decision to release oil from various Strategic Petroleum Reserves – is that demand recovery is still at risk of further Covid lockdowns by government.

Indeed, Bloomberg reported that the resurgence of profitability enjoyed by oil refiners in Asia earlier this year slipped from recent highs in November as the return of some Covid-related travel curbs in China negatively impacted jet-fuel consumption, and as the recent panic over a lack of winter heating fuels proved to be overblown.

However, a view of the bigger picture still sees oil shortages and corresponding price spikes, due mainly to a lack of investment in future supply: Vitol Group noted that the number of rigs drilling for oil and gas across the globe is down about 30 percent compared with where it was before the pandemic, even though demand recently returned to pre-pandemic levels.

Marwan Younes, chief investment officer at Massar Capital Management, said,  "I think forward oil prices will roll up beyond spot prices."

As for Asia's perceived demand hurdles, they too may prove like the concern over winter heating fuels to be grossly overblown: Reuters on Thursday said the region's imports of crude oil are likely to have rebounded in November to the highest this year (at 2.95 million bpd) and overall "reflect stronger demand ahead of winter and an ongoing recovery from the worst of the coronavirus pandemic."