By Nicholas Earl
Oil prices are unlikely to hit $100 per barrel this year despite a seven-week rebound and tightening supplies this year, experts predict.
While prices are expected to remain robust, concerns over waning demand next year and China’s slow economic recovery could be prevent both major benchmarks from hitting the century milestone.
OPEC has managed to prop up oil prices with swingeing cuts of over five million barrels per day, more than five per cent of global supplies, with Saudi Arabia and Russia unilaterally expanding their own cuts by a further 1.5m barrels per day.
This has contributed to a hefty price rally, with Brent crude rising from $72.51 per barrel on June 27 to $86.81 per barrel on August 11.
Ole Hansen, head of commodity strategy at Saxo Bank, told City A.M. he “sincerely doubted” oil prices will hit $100 per barrel, noting that OPEC members would also want to close the five million barrels per day of spare capacity with higher production revenues.
“The economic slowdown, which we believe will gather momentum in the coming months, and together with China accounting for 70 per cent of the demand growth this year, any further deterioration may also reduce demand from the world’s biggest importer,” he said.
Rania Gule, an analyst at online trading platform XS.com, argued that the prices may now even be at a buying peak, with bearish momentum over the long term, reflecting the International Energy Agency’s (IEA) expectation of a demand slump next year.
She argued that the “possibilities of an upward movement remain in the short and medium term,” but the prospect of $100 per barrel was still “the less likely scenario.”
Callum Macpherson, head of commodities at Investec, believed that the Paris-based climate agency’s demand estimates for the second half of this year – of 2.2m barrels per day (bpd) in 2023 – could be too high, with forecasts reliant on an imminent revival in China’s economy.
In his view, prices were also contingent on whether leading OPEC member Saudi Arabia extended its 1m barrels per day cuts beyond September.
“As that cut has now been extended to the end of September we have a deficit of around 2m bpd to the end of September and 1 to 2m bpd deficit in the fourth quarter depending on whether they roll cuts further,” he told City A.M.
There is also a growing possibility of political concerns dictating the actions of the world’s most influential cartel, with concerns US drilling could be stimulated by high prices.
Bjarne Schieldrop, chief commodity analyst at SEB, argued that it was likely in Saudi Arabia’s interests to keep oil prices at $85 per barrel rather than cut supplies further and risk annoying the US.
“Saudi Arabia should be fully content for the moment. It has shown the market yet again who’s the boss. Why ruin the party with oil rallying above $100 per barrel and stir political tensions when oil at $85 per barrel is such a beautiful place?
“The world needs more of its oil, and Saudi Arabia has spare capacity to provide it. Tapering of Saudi Arabia’s cuts in the fourth quarter would be the natural thing to expect. But all through September at least there should be a very sharp and tight market,” he said.
