Oil prices remained tight this Tuesday, supported by greater demand globally. However, rising Covid-19 cases in Europe and a forecast of more oil production to the extent of a surplus are also putting downward pressure on prices.
Firstly, Brent crude was up 9 cents this Tuesday, 0,1%, and settled at $82.14 a barrel, while the US mix, the West Texas Intermediate, fell 25 cents, 0,3%, and settled to $80,63 a barrel, according to Reuters.
Moreover, some experts consider that the market will lend support to prices. Commerzbank analyst Carsten Fritsch said to Reuters. “The oil market will remain tight in the short term, which should lend support to prices.” Also, Trafigura’s Chief Executive Officer, Jeremy Weir, said the tightness in global oil markets was due to the return of demand to pre-pandemic levels.
He also remarked. “It’s not artificially tight because of what OPEC is doing. Demand is there.” Nevertheless, the International Energy Agency considers that the oil prices rally may ease off as higher prices frequently boost production.
Furthermore, this would be particularly valid in the United States. About the matter, Rystad Energy’s analyst Louise Dickson said. “Supply will grow more to meet demand as current prices provide the perfect environment for producers to increase output. It will just not happen immediately, and that’s why the remainder of 2021 is bullish.”
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Oil prices could suffer from surplus production
Consequently, the IEA says that oil prices will average at $71,50 per barrel in 2021 and $79,40 in 2022. Still, more production could lead to a surplus, unbalancing the market and putting further pressure on oil prices.
In fact, OPEC’s Secretary-General Mohammad Barkindo said on Tuesday that the organization expects oil surplus as early as December and that the market will continue over-supplied for the next year. “The surplus is already beginning in December. These are signals that we have to be very, very careful,” he said.
Indeed, OPEC cut its world oil demand forecast for the 4Q by 330,000 barrels per day compared with last month’s forecast, as high energy prices hampered economic recovery.
In addition, Covid-19 is once again causing fears of new lockdowns; especially as Europe sits at the epicenter of the pandemic. According to Reuters, some European countries could enter lockdown once again, while China is battling the spread of its biggest outbreak caused by the Delta variant.
