Despite the current state of the world economy, oil prices may soon rise back above $100 per barrel again due to Opec+ output cutbacks and the EU’s ban on Russian crude exports, according to observers of the oil market. This is far sooner than analysts had anticipated two months ago.
According to its November short-term energy outlook, the US Energy Information Administration (EIA) now expects the Brent crude oil spot price to average $102.13 per barrel this year and $95.33 per barrel in 2019.
The EIA slightly increased its forecast for the price of Brent oil for both 2022 and 2023 last month, predicting that the Brent spot average would be $102.09 per barrel in 2022 and $94.58 in 2023.
Covid Lockdowns In China
Oil prices fell by about 2% on Friday as a result of worries about weaker Chinese demand and an additional increase in US interest rates. US West Texas Intermediate crude fell $1.56 or 1.9 percent to settle at $80.08 per barrel, while Brent crude fell $2.16 or 2.4% to settle at $87.62 per barrel.
In a similar vein, Goldman Sachs cut its predictions for Brent oil prices in the fourth quarter by $10 to $100 per barrel on Sunday, citing various factors such as the likelihood that China’s COVID case will have an adverse effect on consumption.
The investment bank responded to the forecasts by saying that China’s worries were “another speed bump on the road higher,” as the major consumer has suggested that lockdowns are about to come to an end. Goldman stated that it is maintaining its $110 per barrel 2023 Brent forecast unchanged.
The bearish factors dictating the oil market at the moment are China’s sudden lockdowns and slowing economies. But in the near future, analysts say, the bullish factors might prevail, pushing oil prices back up to triple digits.
As the nation battles outbreaks across the country and in major cities, the number of new COVID cases in China has stayed close to April peaks. After officials requested that residents stay at home due to an increase in cases, schools in Beijing districts buckled down for online classes on Monday.
The oil market did stabilize as a result of Opec+’s decision to reduce the headline production target by two million barrels per day as of November, as the group claims this is its intention. Brent prices have remained stable at over $90. Analysts for commodities claim that despite aggressive interest rate increases to combat inflation, the risks moving forward are more to the upside than to the downside.
According to a report by Saudi-owned Al Arabiya TV, Opec Secretary-General Haitham Al Ghais stated that the organization is prepared to intervene for the benefit of oil markets. Ghais also stated that Opec is aware, cautious, and monitoring economic developments around the world.
Opec+ announced plans to lower oil production by two million barrels from the required production level in August 2022 in early October. Saudi Arabia and Russia should produce 10.5 million barrels per day (BPD) in November 2022 if the plan is carried out; the production of the Opec 10 group members should total 25.4 million BPD, while that of non-Opec producers should be 16.4 million BPD.
In practice, this would result in Opec+ producing 41.9 million BPD on average.
According to the IEA, Opec+ countries reduced their oil production by 40,000 BPD in October 2022 and are now 3.22 million BPD behind schedule.
On the whole, the amount of oil produced by the alliance’s members fell by 30,000 BPD from September to 38.88 million BPD. The target level of production for September among Opec+ nations was 42.1 million BPD at the same time.