But in the absence of a deep recession that would sink global oil demand, prices are expected to rise toward the end of the year and early next year, some analysts say. Most point to very tight spare capacity with both US shale producers and OPEC+ as a key factor driving oil higher next year, even if global demand grows less than expected on present. The impending EU embargo on Russian seaborne oil imports later this year is also expected to push prices higher as trade flows will have to adjust, once again, as happened in the first two months of Russia’s invasion of Ukraine. In the bearish camp of actors is the so-called Iran nuclear deal, which, if agreed by Iran and world powers including the US, could return about 1 million barrels of oil per day (bpd) to the market within a year. But just this week, the world’s top crude exporter and OPEC’s top producer, Saudi Arabia, tried to talk up oil prices, saying its OPEC+ partners have “the wherewithal to address market challenges, including curtailment of production at any time and in various forms’. Then there is the end of releases from the US Strategic Petroleum Reserve (SPR), which is currently due to end in October. The end of SPR releases could further tighten the oil market ahead of winter as utilities in Europe and Asia switch from gas-fueled production to oil due to extremely high natural gas prices. Slowing economic growth and a possible Iran nuclear deal are weighing on prices. But the gas-to-oil switch, OPEC+’s readiness to cut production again, very low global spare capacity, the end of SPR releases and continued discipline from US shale are all bullish for oil prices. A mild recession may not erase oil demand growth, many analysts say.
Because of very little excess capacity, “even if demand is positive, even to a small degree, I think then you’re in for much, much higher prices,” said Neal Dingmann, managing director of energy research at Truist Securities. Yahoo Finance Live this week. “Domestically, whether it’s oil or gas, these companies have very limited incremental capacity right now,” Dingmann said, adding that with LNG demand in Europe soaring, the largest natural gas producers in the U.S. ” they will continue to print money.” Referring to global excess capacity, the energy expert said that “across OPEC+, even in Saudi Arabia, there is not the excess capacity that people perceive to be there.” Dingmann believes oil could fall to $80 a barrel this year, but then jump to $110 a barrel early next year, largely because of limited spare capacity for oil and gas production worldwide. This week, Saudi Arabia said OPEC+ is ready to cut production if necessary, its energy minister, Prince Abdulaziz bin Salman, said in an interview with Bloomberg. “Markets cannot reflect the realities of physical fundamentals in a meaningful way and can provide a false sense of security at times when excess capacity is very limited and the risk of severe disruptions remains high,” Prince Abdulaziz bin Salman said. from the Saudi Press Agency. This vicious cycle of thin liquidity and extreme volatility in the paper oil market is “reinforced by the flow of unsubstantiated stories of demand destruction, repeated news of large supply volumes returning, and ambiguity and uncertainty about the potential impact of price caps. embargoes and sanctions,” the top oilman in Saudi Arabia said. Prince Abdulaziz bin Salman said the OPEC+ group would soon start working on a new deal after 2022 and that “We are determined to make the new deal more effective than before.” With this Bloomberg interview also published by the official Saudi news agency, Saudi Arabia is sending a strong message to the market that it will continue to manage oil supply (read: oil prices). If a recession does not severely damage global oil demand, oil prices could return to a rally as OPEC+ could counter the return of Iranian oil with new cuts, while Russian supply with the EU embargo could to sink.
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