Oil supply is tight … shortage, what if Russia holds output ?!
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INFLATION and the high energy prices are definitely not good news for oil consumers. There is neither enough oil in the market nor will any spare capacity come onstream in the near future. Despite the agreement of OPEC+ last Thursday to increase production by 25,000 barrels per day starting from next month, this increase is not enough. Moreover, the oil organization never stuck to the promised level and volume of increase. It has mostly been paper exercise rather than actual physical volume addition of extra barrels.
The compliance rate of OPEC+ has always been above 100 percent; in fact it was recently about 150 percent. This means less volume of oil compared to its own decision to increase. So, do we believe them this time?
The news about an increase in July production to 650,000 barrels per day is welcomed by the final consumers in the hope of lower gasoline prices globally, particularly for the US consumers, as July 4, when they go on long car rides, is getting closer. However, don’t bet on it.
Of course, the sudden decision by the oil members for a production hike is a direct response to the lesser supply of Russian oil to the global market. It is also aimed to ease the high oil prices, which can dampen oil consumption in the near future. In addition to that, OPEC+ wants to be part of the oil consumers in easing inflation rate and the higher prices of food items that are mostly imported. Therefore, there are double benefits for both parties involved in oil, especially with the current lack of spare capacity globally.
The energy picture is not comforting, especially with the shutting of oil supply from Russia, which might retaliate further by reducing its own oil production, pushing for higher oil price, and attempting to gain from the lost volume.
Undoubtedly, closed-door negotiations took place within OPEC+ to satisfy its biggest partner in the group and to gain its approval. This is because, without Russia, oil would not have reached such a level of 500 percent increase.
It is a worrying time for both consumers and producers. Oil producing countries are to blame. Not knowing the current US administration is the main cause for the lack of investments in oil globally. Keenness to get out of oil production and focus on “net zero” caused most oil companies and their shareholders to stop investing in oil and shale oil. Today the USA administration has changed its mind and is urging for the reversal of its policy. But how many oil consumers are aware of this bare fact? The USA is now forced to almost beg everyone in oil to go full blast in more explorations and increase in investments in black barrels, something that was a taboo a year ago.
Today the oil price stands at $117 a barrel. Will it remain at this level? That is doubtful as China is opening up again at a time when supply is tight. The Russian media is calling for restraint on crude oil production, even though petroleum products are in demand. Global refineries are short of enough gasoline and diesel, and the supply is short. Not only is there a need for crude oil supply but also petroleum products too.
The oil situation is not comforting, despite the expected increase of 250,000 barrels from next month by OPEC+. Let us observe the physical volume pouring through the markets.
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By Kamel Al-Harami
Independent Oil Analyst
This news has been read 18142 times!
