With rising oil prices and constant pressure from the United States, why is OPEC+ unwilling to increase production further?

Source: Wall Street

All three major energy forecasters believe that the sharpest consumption of oil stocks is over and that this year's oil supply gap will turn into a surplus next year.

With the aggravation of the international energy crisis, the serious imbalance between supply and demand makes the international oil price further higher, and the bullish sentiment is at an all-time high, but next year, the situation may be very different, which is the reason why OPEC+ is reluctant to increase production further.

As of Friday's close, US WTI crude oil futures prices rose 1.19%, up 3.5% this week, while Brent crude oil futures prices rose 1.02%, up 3% this week, the sixth consecutive week of gains. Oil prices have rebounded more than 30 per cent from their periodic lows since mid-August.

But the International Energy Agency (IEA), the US Energy Information Administration (EIA) and the Organization of Petroleum Exporting countries (OPEC) all believe that this year's oil supply gap will turn into a surplus next year.

All three forecasters believe that the sharpest consumption of oil stocks is a thing of the past and that global oil inventories will start to increase again next year if oil-producing groups continue to increase supply at the same rate in the coming months.

According to OPEC analysis, by the second half of next year, the oil market will reach a balance between supply and demand. Both IEA and EIA believe that from the second quarter of 2022, global oil supply will far exceed demand, and by the end of next year, excess production will be close to 3 million barrels per day.

That is why OPEC+ remains cautious about further increases in supply.

Earlier this month, the OPEC+ Alliance of Oil producers, led by Saudi Arabia and Russia, said it would increase production by 400000 b / d per month in November as originally planned, that is, it would not increase production too much to ease the supply shortage.

At the Russian Energy week (Russian Energy Week) in Moscow this week, Russian President Vladimir Putin said that Russia would not allow oil prices to rise sharply and that it was not in Russia's interest to do so.

At the same time, he believes that the supply and demand of the crude oil market has gradually stabilized recently, but Russia has not returned to the level of 11 million barrels per day before the outbreak. With regard to increasing production, Russia's basic position is to increase production based on the growth of market demand for crude oil.

On oil prices, which have risen sharply recently and exceeded $82 a barrel for the first time in seven years, Mr Putin said: oil prices are likely to hit $100 a barrel.

Gas shortage aggravates the imbalance of oil market

With the recovery of the COVID-19 epidemic, oil demand has rebounded, global oil inventories have continued to decline, and oil inventories in OECD countries have fallen to the lowest level since 2015.

In addition, the shortage of energy supplies such as natural gas has further increased the alternative demand for crude oil. The International Energy Agency (IEA) released a monthly report this week saying that the natural gas crisis is spreading to the oil market and that crude oil demand in this quarter and the next will be mainly affected by the conversion of gas to oil. The IEA monthly report shows that the conversion of gas to oil may increase demand by 500000 barrels per day in the next six months.

In this context, the crude oil market bullish sentiment is strong. Wall Street mentioned earlier, Goldman Sachs Group commodity strategist Damien Courvalin believes that as demand rebounds and supply is still tight, oil prices may remain at a high level in the next few years. Brent crude is expected to reach $85 a barrel in the next few years, while the price of Brent crude will rise to $90 by the end of this year.

Since the oil price rise accelerated, the White House has repeatedly urged OPEC+ to increase production. White House Press Secretary Jane Psaki said last week that the White House continues to put pressure on OPEC on oil prices and is considering how to improve the logistics of national energy supplies.

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