(BFM Bourse) – After the barrel of Brent from the North Sea, the North American benchmark for crude oil is also close to the 90 dollar threshold on Wednesday, in reaction to the new marginal increase in supply decided by the member countries of OPEC and their allies.
Regardless of the current price spike, oil-producing countries are sticking to their agreement reached last July, providing for an increase in their production of 400,000 barrels per day, each month, between August 2021 and September 2022. Although ‘anticipated by the market, this very gradual reopening of the valves, which comes as a reminder after a historic cut of nearly 10 million barrels per day at the height of the health crisis, continues to fuel the surge in oil prices, in a market which still seems to be structurally in deficit.
Since the organization’s last monthly meeting, the price of a barrel of West Texas Intermediate (WTI) has nevertheless climbed by more than 17% and that of Brent by more than 14%, the two world crude benchmarks having thus reached in January peaks unseen for more than seven years.
Around 3:30 p.m. on Wednesday, the European North Sea benchmark is trading at 89.7 dollars a barrel for delivery in April, up 0.7% from the previous day, when that of Texan “light sweet crude” (for delivery in March) is trading at 88.6 dollars (+0.5%). A little earlier, the latter had come close to the 90 dollar threshold shortly after the announcement of OPEC +, a level not seen since the summer of 2014.
A production already struggling
“WTI looks set to resume its uptrend as long as the Saudis don’t surprise the OPEC+ meeting by pushing for a bigger production increase,” said Edward Moya, an analyst at Oanda on Tuesday. “The Saudis are seeing that American drillers (shale, hit hard by the crisis, editor’s note) are starting to invest in new wells, which could raise fears about market share,” he also said.
After refusing to give in to pressure from Joe Biden who demanded a greater gesture to curb the rise in prices last November, the producing countries therefore ignored geopolitical tensions, particularly in Ukraine, posing a threat to supply.
The explanation probably lies, at least in part, in the fact that OPEC+ members are still failing to meet its production targets. According to a survey by the Bloomberg agency, the total volume of OPEC + has indeed increased by only 90,000 barrels per day. “A number of countries, such as Angola and Nigeria, are simply not in a position to increase their production any further,” said Carsten Fritsch of Commerzbank. And other states don’t want to close the gap…or can’t.
Russia, which is part of the enlarged OPEC+ cartel, “also does not produce the quantities allocated to it, and has done so for several months, which raises questions as to its ability to meet its production objectives” already underlined Benjamin Louvet, commodity expert at Ofi Asset Management in early January.
Saudi Arabia, the actor at the center of the game
Even if the announced increase is once again modest, the market therefore fears “that OPEC + will not be able” to reach its production objectives, explains Bjornar Tonhaugen, analyst at Rystad Energy. For his colleague Louise Dickson, the alliance of 23 nevertheless holds the key to balancing “an oil market in need of supply” and stopping the overheating of prices. “The only short-term solution will have to be led by Saudi Arabia, the producer with the largest spare capacity,” she said. According to the EIA, the country actually had the world’s second largest reserve of black gold at the end of 2020, with 256 billion barrels (15% of so-called “proven” world reserves), behind Venezuela and its approximately 300 billion. barrels lying underground – but impossible to extract in the years to come due to chronic underinvestment in infrastructure.
Until Riyadh reopens its tap more widely, oil prices should therefore continue to appreciate, until perhaps reaching 100 dollars in the event of market exaggeration, which could be linked to “outages”, or unscheduled production interruptions” according to Benjamin Louvet.
Quentin Soubranne – ©2022 BFM Bourse