The steady climb in oil prices has prompted some in the market to speculate that if current market conditions continue, oil prices could reach $100 a barrel.
WTI crude oil stood above $86 last week, and Brent crude oil futures rose above $91 at one point, both hitting new highs since October last year.
Oil prices retreated from five-month highs on Monday after Israel said it would withdraw some of its troops from Gaza, but have since recovered most of their losses as traders await a slew of market reports this week that will provide a broad picture of current supply and demand in the oil market.
“Israel’s concession to withdraw from Gaza must not distract from the ongoing threat of a more direct conflict with Iran,” said Vishnu Varathan, head of Asian economics and strategy at Mizuho Bank in Singapore. “Upside volatility in oil prices remains, thanks in large part to geopolitical concerns that amplify supply shortages elsewhere.”
Commenting on the upward trend in oil prices, Claudio Galimberti, senior vice president at Rystad Energy, said:
“There are a lot of geopolitical reasons for us to worry about supply risks, so I think triple-digit oil prices are not far away at this point, and that’s where we’re going to be for sure in the coming months.”
Galimberti noted that continued OPEC+ production cuts and the Ukrainian drone attack on Russian refineries could be the main catalysts that push oil prices toward $100 in the coming months. "Russia is a major oil producer. So once 500,000, 1 million barrels per day of production capacity is temporarily affected, oil prices could go up another $5 to $10, and then oil prices are going to be in triple digits."
To be sure, the analyst noted that ample spare capacity, or the ability to produce more oil in the Middle East, could help keep prices in check.
Last month, Russia said it would deepen production cuts, prompting JPMorgan analyst Natasha Kaneva to predict Brent crude prices would reach $100 a barrel in September.
“On the surface, assuming no policy, supply, or demand response, Russia’s production cuts could drive Brent prices to $90/bbl in April, mid-$90/bbl in May, and close to $100/bbl by September,” Kaneva and her team wrote in a note last week.
However, Kaneva expects Brent crude oil prices to reach $90 per barrel by May, but may reach $85 in the second half of the year, because if prices are too high, some countries will take corresponding measures. For example, the United States may choose to release supplies from its Strategic Petroleum Reserve (SPR), Russia may choose to maintain its exports at current levels, or demand destruction may begin.
“The lessons from the 2022 energy crisis tell us that countries have multiple levers at their disposal to mitigate the impact of higher oil prices quite effectively,” the JPMorgan team wrote. “Our view remains that, given the strength of the dollar and high borrowing costs, oil prices significantly above $90 could lead to severe disruptions to global oil demand, as was the case in March-June 2022 and September-October 2023, leading to lower oil prices.”
So far this year, WTI crude has risen 23%, while Brent crude has risen nearly 20%.
Looking ahead, the U.S. Energy Information Administration (EIA) is scheduled to release its Short-Term Energy Outlook on Tuesday, and OPEC and the International Energy Agency (IEA) will also release reports later this week. A large amount of data and reports will help traders "get a glimpse" of the actual current state of the oil market.
The current OPEC+ cuts come as producers such as Mexico reduce supply and as shipping in the Red Sea continues to be disrupted by Houthi attacks. Money flows from Russia and Venezuela will also be in focus as the United States steps up sanctions.
The article is forwarded from: Jinshi Data
