Tight global energy supplies pushed oil prices above $80 a barrel for the first time in three years on Tuesday before retreating in a broader selloff in financial markets. Demand rose due to easing lockdown measures and wider rollouts of COVID-19 vaccinations, analysts say, as well as disruptions in supply due to hurricanes in the United States. Will OPEC+ increase supplies?
Goldman Sachs expects oil prices for benchmark Brent crude to hit $90 per barrel by the end of the year as supply tightens. The recovery from the impact of delta variant of the coronavirus was faster than expected especially with international travel, it said, while Hurricane Ida hit U.S. production.
Although some analysts find that the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have been slow to raise their oil output to address the shortfalls, others like Carole Nakhle, CEO of Crystol Energy in London, told VOA that there is no real oil supply shortage.
“I struggle to see how we have a shortage of supply when you have OPEC+ sitting on millions of barrels a day of spare capacity. Usually if you look historically when we have serious crises in oil markets and prices going significantly high, that spare capacity was very low. Today that is not the case. So, we have a voluntary decision not to put all that oil in the market and that is contributing to the current tightness. Saudi Arabia, UAE and Kuwait don’t seem to be facing any problem. If they want, they can easily appease the pressure in the market,” said Nakhle.
Neil Quilliam, an associate fellow at London’s Chatham House, told VOA that it is hard to say whether OPEC - which meets next week - will increase production. But he notes that U.S. national security advisor Jake Sullivan met Saudi Crown Prince Mohammed bin Salman earlier this week.
"I would find it really hard to imagine, given where the price of oil is at the moment and that OPEC is meeting next week, that that didn’t inform an important part of the conversation. It’s hard to say, but the signals so far are that they are going to stick to where consumption currently is and keep in alignment with plans to increase production by 400,000 barrels each month until the end," he said.
Norbert Rucker of the Swiss private bank Julius Baer said that the deficit in world gas supplies is driving the global energy crunch. He told the Wall Street Journal that “this is now spilling over into the oil market because of the expectation that this energy scarcity means we’re going to use oil for spillover demand.” Oil can be used in some power plants to generate electricity when gas prices surge.
Nakhle said gas markets have no such OPEC+ entity. Currently, “Russia is seen to be restricting some of its supplies to Europe to gain more support for its Nord Stream 2 pipeline” and “to take advantage of higher prices, but Russia does not have the same impact on gas prices as you have, for example, with OPEC+ in oil markets,” she said.
Gas prices have risen in part due to a worldwide production deficit, depleted inventories as well China’s turning to gas from coal. Analysts say the energy crisis will worsen if there is a very cold winter ahead in the northern hemisphere.