KUALA LUMPUR: The decision by the Organisation of the Petroleum Exporting Countries and other key oil nations (Opec+) to rein in output may push oil prices to as high as US$150 per barrel, some economists said.
They, however, felt that the production cut announced last week – which followed the one earlier this month – would slow demand for oil and deteriorate the world economy, which was on the brink of recession.
Juwai IQI chief economist Shan Saeed said the Opec+ decision might lead to oil prices meandering around US$110-US$150 per barrel for 2022.
“The energy market is still in the backwardation ie. spot is higher than future. Demand is still in the energy market equation. Presently, daily demand for oil ranges from 92-97 million barrels per day (bpd).
Last Wednesday, Opec cut its 2022 forecast for growth in world oil demand for a fourth time since April.
It also trimmed next year’s figure, citing slowing economies, resurgence of China’s Covid-19 containment measures and high inflation, according to Reuters report.
Oil demand was expect to increase by 2.64 million bpd or 2.7 per cent in 2022, Opec said in a monthly report, down 460,000 bpd from the previous forecast.
“Opec+ has already decided to cut production by two million bpd last week. The crisis in Europe is getting severe as demand for oil and gas prices is going up. The energy crisis will hit the global economy next year,” Shan said.
He added that the oil market would stay volatile due to supply cuts.
“Saudi Arabia and Russia are calling shots in the energy market. We have been sharing since 2020.
“Another oil production cut is possible in the next Opec meeting. Prices above US$90 to US$95 per barrel are acceptable to many Opec members to bolster GDP outlook.”
On the other hand, he said, sanctions against Russia had put pressure on the oil and gas companies.
“Russia will only produce nine million bpd for the market next year – a sharp decline of two million bpd,” Shan added.
SPI Asset Management managing partner Stephen Innes said whenever there was any poor growth headline, it always triggered an adverse reaction in the oil markets.
“With back-to-back gloomy doom loop reads from China lockdowns to the International Monetary Fund (IMF) growth down trades and OPEC demand downgrade, it is challenging for traders to hold their nerve given the heightened cross-asset volatility,” Innes told the New Straits Times.
Innes regardless of the gross domestic product (GDP) growth slowdown, there would be no growth in global oil supply thanks to years of under-investment.
“Forget 2023 GDP. When China eventually normalises, it will be a massive tailwind and a significant driver for the medium term,” he added.
He said Opec’s unambiguous willingness to plank prices against the backdrop of an impending European Union embargo in Russia was substantial bullish skews despite the US extending strategic petroleum reserve releases and considering NOPEC legislation
“Oil is still high but gas prices in Europe have come off quite a bit, and with China importers staying out of the spot market this winter as demand growth is now the slowest since 2002, the world’s top fuel importer will likely avoid competing with crisis-hit Europe for supplies,” he added.