Posted Jan 18, 2022, 8:30 AMUpdated on Jan 18, 2022 at 11:42
Oil prices are soaring again. This Tuesday, the barrel of Brent, an international benchmark, was trading for 87.26 dollars after climbing to 88.13 dollars in session. A level that had not been observed since October 2014. For its part, the American barrel of WTI was trading for 85.25 dollars, approaching its peak of last October (85.41 dollars) which was already a highest since 2014.
Brent and WTI, which had ended 2021 with gains of around 40%, are already up more than 10% since January 1. In their wake, they lead to a new outbreak of fever on the side of prices at the pump. Diesel, the most used fuel in France, thus crossed the threshold of 1.60 euros per liter last week.
Several factors explain the surge in prices on the oil markets. In particular the interruptions of production in several countries, such as Nigeria, Angola or Libya. But also fears at the geopolitical level. Tensions escalated on Monday after Yemeni Houthi rebels attacked civilian facilities in the United Arab Emirates, killing three people.
All eyes are also on Ukraine, under the continuing threat of an invasion by Russia. Disruptions in Russia’s gas supply to Europe are helping to push up crude prices, some analysts say. High natural gas prices lead to an increase in demand for diesel and fuel oil used as a substitute when possible.
Finally, the fears surrounding the emergence of the Omicron variant seem to be fading. Initially perceived as a threat to the oil markets, the impact of the latter on global growth and therefore the demand for oil is proving to be less serious than expected. OPEC itself, in its last monthly report, had anticipated a “weak and short-lived” impact.
Weight of the OPEC+ strategy
Investors now seem to be focused on market fundamentals and “the delicate balance between supply and demand, which seems to have a fairly large impact on price swings throughout the post-pandemic economic recovery,” notes Walid Koudmani, analyst at XTB.
Supply remains constrained while demand is high in this period of global economic recovery. And in this context, OPEC+ (OPEC and its allies including Russia), which has once again become the main player in this market, refuses to pump more crude than what was agreed last year (400,000 barrels per day) .
According to analysts, these marginal increases in extraction targets, which some members of the cartel are struggling to achieve, should not be able to meet the needs. On the other hand, they allow them to take advantage of the current high prices, with some players, including Saudi Arabia, needing a price above 65-70 dollars to balance their budget.
Shale to the rescue
“OPEC+ output gaps are set to widen, with Russia the next big deficit driver,” according to Joel Hancock of Natixis. The only solution, according to him: “use American shale oil to meet the expected growth in consumption”. However, this key market player has been heavily impacted by the Covid pandemic. The collapse in crude oil prices has pushed shale oil drilling companies into insolvency, the cost of which is much higher than the light oil drilled in Saudi Arabia, for example.
According to observers, the rise in oil prices should therefore continue in the coming months. JP Morgan sees crude prices reaching $125 this year and even $150 in 2023. Goldman Sachs analysts have also revised their forecasts upwards. In a note released Monday, they see Brent now hitting $96 this year and then $105 in 2023.