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THE US oil price is trading below $90 a barrel, and Brent close to $75. The market is in a desperate need for uplift, which is not coming soon, as USA is not ready to fill its lost strategic reserve. It is perhaps waiting for further weakening of the oil prices. Oil price is in need of something to happen to come out of the sudden weakness. The end of the winter season and the entry into the lull market for the coming four months could depress the oil prices further, maybe to below $ 70 per barrel.
Perhaps such a weak level may trigger a call from OPEC+ to act again for further volume reduction or to think seriously about some form of floor for future oil barrels, to ensure the situation does not go bad in terms of further decrease in the oil price. USA again is going to play an important part in redirecting the oil price in terms of whether it should go ahead in buying additional domestic crude oil to fill up its lost stocks that were released in its effort to reduce domestic oil prices, to control inflation and to satisfy its voting base. The USA target level is $67 to $72 for buying crude for strategic reserve.
The time is now, but the administration has taken its time. Despite its reserve being the lowest since 1983 with about 400 million barrels in its stocks, it needs to buy more than 300 million barrels to bring its stock to its normal level. The future outlook does not seem alarming to trigger such an action at the moment. For sure however, a decision will be made before the middle of the third quarter before oil prices jump again in anticipation of a cold winter during the fourth quarter. Here, OPEC+ must also take some action to always be in the driving seat during their coming June meeting or perhaps earlier, should the oil price drop further due to weakening of demand. With the Russian boycott by G7 countries, the situation seems interesting but not effective in moving volumes of Russian oils.
However, it is severely effective in depleting it from huge oil income. Now the market has really stabilized and is getting used to Russia’s new supply position and routes. Things are returning to normality but there are concerns of panic in the oil markets and the hardening of oil prices. Again, OPEC+ should take a firm action to ensure a firm and floor price for its oils instead of being under speculation, as USA’s delays in replenishing its stocks is a clear example of anticipation for decline in the oil price at such a rate that is even lower than the USA target price for filling its socks. The call for OPEC+ for some action is warranted.
By Kamel Al-Harami
Independent Oil Analyst