Oil rig in Taft, California, USA (Photo: David McNew)
Market buzz is firmly back on Brent crude oil futures reaching the psychological $100/barrel level. This comes after the Brent front-month contract hit a high of $91.59 on Friday (April 5, 2024) and has since fallen.
However, it is still lurking near levels not seen since late October. As of 11:16 a.m. EDT Tuesday, the global proxy benchmark was trading at $89.67 per barrel, down $0.69, or 0.74%, from the previous session and within an intraday trading range of $89 to $91. Met.
The next resistance level to be tested is around $95. But even though North Sea Brent futures prices are still well below the benchmark, $100 oil is almost within reach as the market tightens thanks to OPEC+, an oil producer group led by Saudi Arabia and Russia. Some think it’s coming.
In this context, OPEC+ agreed in March to extend a “voluntary” crude oil production cut of 2.2 million barrels per day (bpd) until the end of June to “support the market.” The latest ministerial meeting supported this decision. .
It also said that some countries in the group, such as Iraq and Kazakhstan, have pledged to improve compliance with the targets, while Russia has announced that cuts for the second quarter of 2024 will be based on production rather than exports. .
That is after the data published by. S&P Commodities Insights A secondary source used by OPEC+ to assess member countries’ compliance with production quotas shows the group exceeded agreed production levels of 275,000 barrels per day in January and 175,000 barrels per day in February. It was shown that
Apart from compliance within OPEC+, the big question regarding pricing is how high is enough given the expected tightening of the market in the second half of 2024. Differences can occur in what individual members want and how they will react as a group.
And while OPEC+ actions are important, they are not the only driver of oil prices. U.S. crude oil inventories have been very bullish in recent weeks, especially with the American Petroleum Institute showing crude and product intakes of 6.4 million barrels at the end of March. This is also usually associated with increased inventory at this time of year.
In addition, tensions in the Middle East and Ukraine’s attack on Russia’s energy infrastructure are also catalysts for price increases.
OPEC+ has barely acknowledged officially that its moves are aimed at pushing up oil prices. However, despite the increase in non-OPEC production, the company knows that general market conditions give it some control over the market’s downside and upside direction.
However, while we would like to see a high enough price, at least $80, a level that is too high, say $110 to $125, could be self-defeating in 2024. This is because if Brent prices reach such high levels, their inflationary impact will be significant. The world’s central banks will likely prevent interest rates from cutting and maintain current high levels for an extended period of time.
The resulting demand destruction is undesirable for OPEC+. So, all things considered, if tight market demand drives oil prices inching closer to $100, producer groups likely want to keep it there and could potentially reverse production cuts to raise oil prices. There is sex.
