This post has been read 12303 times!
THE latest forecast for the crude oil price level during the coming months is $140. The main reason behind this price level is the strong recovery of China’s economy with the anticipation that it could push its demand for oil to almost four million barrels from one million barrels last year. The announcement made by Russia to reduce its production by 500,000 barrels with immediate effect pushed the oil price to $87 a barrel in no time.
However, there is no news to ascertain whether the Russian reduction was done in coordination with its peer group of oil producers – OPEC+ – or whether it has done this solely without any consultation. Under the current scenario with the European Union’s boycott of Russian oil and gas, Russia is losing its revenues. Also, it is spending much of its cash resources on its war and occupation of Ukraine. Meanwhile, the G7 is imposing severe restrictions on Russian oil at its own price rules such as $60 per barrel for Russian oil sales, along with marine and insurance restrictions. The other fact is that Russia is losing its energy market in the European Union forever without any return to this huge market that has been under its dominance for years and years. Russia also must invest in a new gas pipeline to export its gas to China in the coming ten years.
In our opinion, Russia has lost its secured market outputs forever, with the gas prices coming down. Strangely enough, Europe managed to secure all its requirements within a short time, while Russia remained with a huge deficit of $25 billion in its budget due to the 47 percent drop in the energy income. The drop and reduction of 500, 000 barrels certainly will lead to some hardening of oil prices at a time when the oil supply is tight and the demand is on the rise. The recovery of China’s economy will surely lead to a shortage of oil.
The most likely scenario could be that other oil producers may try to exchange and buy Russian crude oils at much lower prices. If the reduction prevails, then we should anticipate higher oil prices. Oil price may not hit the forecasted level of $140, but due to the current situation with Russia pushing for more oil reduction and with the OPEC+ being firm to not push for more increase, oil prices will hit $100 per barrel, but anything above that may not be sustainable.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]