West Texas Intermediate futures were up 4% Friday after the International Energy Agency (IEA) reported tight markets will continue, but US interest rate increases and a possible stalemate in the US-Iran nuclear talks could cause weekly losses, the first in seven straight weeks.
Early Friday afternoon, WTI March futures were $93.49 a barrel on the New York Mercantile Exchange. Brent was up 3.77% to $94.86 a barrel.
One reason for the tight markets is OPEC+ continues to underperform in meeting output targets. Oil inventories worldwide are at multi-year lows and dwindling as OPEC+ spare capacity has left the market with only a small cushion. Looking forward, the IEA reports that by December 2022, the shortfall between what OPEC+ said it would produce and what it actually delivered since January of last year could amount to 1 billion barrels.
With prices at a seven-year high after demand rebounded from the Covid pandemic, OPEC+ member nations have been unable to restore production levels due to various issues, including the country’s lack of infrastructure to increase production and threats of war. The agency expects the lag to worsen in the future.
Angola and Nigeria, Congo and Equatorial Guinea are producing noticeably less than agreed as they struggle with equipment issues.
World oil prices most likely will continue to rise further as the OPEC+ coalition struggles to revive production unless the cartel’s Middle East members pump extra to make up for the slack, the EIA warned.
Non OPEC+ countries
Last month, non-OPEC+ counties drove the world oil supply. Increases are expected in the coming months as new projects start up and US shale continues to respond to higher prices.
"That has led us to raise our forecast for US oil supply growth for 2022 to 1.2 mb/d. Canada, Brazil and Guyana could add an additional 460 kb/d between them. By contrast, the gap between OPEC+ output and its target levels swelled to 900 kb/d in January. The bloc’s prolonged underperformance has effectively taken 300 mb, or 800 kb/d, off the market since the start of 2021," the report reads.
Non-OPEC supply is set to increase by 3 million barrels per day, wrote Commerzbank’s Energy Analysts Carsten Fritsch in a client note Friday morning.
The agency forecast by Q4 2022 production will surpass pre-pandemic levels. "Further upside is capped by closures and higher energy costs affecting refinery margins," the report reads.
The agency revamped its forecast for U.S. oil supply increases for this year by 240,000 to 1.2 million barrels a day.
Skyrocketing oil prices are a major source of distress for the global economy, causing rapid inflation and afflicting millions with a cost-of-living crisis, said one analyst.
“The oil market is incredibly tight,” Toril Bosoni, head of the IEA's markets and industry division, said in a Bloomberg television interview on Friday. “Prices continue to surge and are now reaching levels that are uncomfortable for consumers across the world.”
Middle East help
Middle East powerhouses Saudi Arabia and the United Arab Emirates could ease the oil markets if they decided to step up production, the agency said. OPEC+ is producing 900,000 barrels a day below January’s target, the EIA reported.
Saudi Arabia and UAE have spare production capabilities, which could help relieve the pressure on global supplies that could push prices into the $100 a barrel range, worsening global inflation.
The group acknowledged that the market is tight right now while highlighting that a nuclear deal between the US and Iran could release 1.3 million barrels of supply.
Iran isn't the only conflict the oil industry is watching. In developments Friday afternoon, the White House said the US believes Russian President Vladmire Putin could green light an invasion of the Ukraine at any time.
National Security advistor Jake Sullivan said Americans should leave the Ukraine within the next 24-48 hours, adding the US would not evacuate citizens from a war zone.
“It is the time to leave now,” he said. “We are in the window when an invasion could begin at any time should Vladimir Putin decide to order it.”
If the invastion does occur, said Edward Moya, head analyst for OANDA, Brent will surely shoot up $100 a barrel.