Oil prices in international market experienced a surge on Monday taking it up to a few cents short of $80 a barrel—its highest in three years—as the global markets recover from the pandemic. Traders are now reevaluating their outlook regarding economic recovery internationally in the midst of tightening crude supply.
Brent crude that is the global benchmark, closed the day at $79.60 a barrel marking a 90% rise during this year. As the global markets recover from the aftermath of the pandemic faster than anticipated, analysts are projecting an increasing demand for oil.
Commodities analyst at US bank Goldman Sachs, Damien Courvalin, said: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected.”
Goldman raised its projections by $10 to $90 per barrel considering the fact that global demand has recovered from the effects of COVID-19, Courvalin added.
Analyst at JP Morgan Christian Malek revised his forecast of $100 per barrel as commodity prices pass through a ‘supercycle’. The oil supercycle is underway,” he said.
OPEC+ an alliance of producers led by Saudi Arabia and Russia, took measures to curtail supplies when the demand lowered
The recovery in oil prices has come about partly because of improving economic conditions throughout the world but also because of the measures taken by OPEC+ which is an alliance of producers led by Saudi Arabia and Russia to control supplies when demand fell.
Goldman said that even though OPEC+ has started to reverse the cuts, due to the allowance of an additional 400,000 barrels every month till December of 2023, the oil market would experience a “structural deficit” in 2023 again as demand surpasses supply and investment stays down.
Some of the big oil producers are facing difficulty to meet the needs of the global market while adhering to the new limits despite the increase in OPEC+ output quotas. The increasing prices and output will prove greatly beneficial for Saudi Arabia that boasts the largest spare capacity amongst the members of OPEC+.
Another factor that would contribute to boosting oil prices is the shortage of gas in Europe and other parts of the world. “Winter demand risks are further now squarely skewed to the upside as to the global gas shortage will increase oil-fired power generation,” Goldman said.
The next meeting of OPEC+ will be deciding whether or not to continue with the increase of 400,000 barrels. However, if oil prices continue an upward trend OPEC+ might face a challenge. Some energy experts hold the opinion that US shale oil could revive and take away the market share of OPEC+.