Oil falls below $80 as OPEC maintains slow production growth

Oil dropped 2.54% on Thursday, falling below $80 per barrel, even after OPEC continued to proceed slowly on production increases.

OPEC and its allies, the Saudi and Russia-led group known as OPEC+, decided to maintain planned monthly production increases of 400,000 per day starting in December, the cartel announced in a news release.

Benchmark West Texas Intermediate crude closed at $78.81, down $2.05 from Wednesday 3 November. The drop coincided with an unconfirmed Saudi Arabian TV report that Saudi Arabia, a US ally, would boost its production.

OPEC’s decision set the stage for a potential battle between OPEC and the US President Joe Biden. The US and other countries, including India and Japan, had called on OPEC to boost production significantly in order to dampen rising prices amid escalating demand as the global economy recovers from the impacts of Covid-19 and oil prices.

Why BoA forecasts $120 oil

Bank of America analyst Francisco Blanch recently forecasted that oil prices could reach $120 barrel by June 2022 in a research note that the company provided to Capital.com.

Blanch said forward oil balances do not appear to be exceptionally tight, and non-OPEC+ supply growth should be able to keep up with demand over the next two years. However, spare OPEC+ capacity is “dwindling due to under-investment.”

“Also we estimate the price elasticity of US shale (oil) supply has dropped by more than half,” he wrote in the research note. “Plus, oil demand growth should stay robust thanks to easy policies, as oil prices remain below the point where demand destruction could kick in.

“And even if the potential return of Iranian barrels helps keep a lid on prices in 2022, a combination of rapidly growing gasoline demand and an ongoing recovery in middle distillates, coupled with refinery constraints, could squeeze oil prices higher in 2022.”

Republican congressman blasts president

But an Arizona Republican member of Congress suggested that Biden is at least partly to blame for rising oil prices.

“Biden is blaming Russia and OPEC on our high (gasoline) prices,” tweeted Rep. Andy Biggs. “I don't remember Russia or OPEC halting our oil and gas leases...”

Biggs was referring to the Biden administration’s decision to halt oil and natural-gas exploration leases in January before reversing the move during the summer. Washington has continued to allow oil drilling in the meantime.

US-based political commentator and author Nick Adams also blasted Biden, contending on Twitter that Biden – not OPEC – is to blame for high US gasoline prices.

Both Biggs and Adams are staunch supporters of former president Donald Trump.

Biden has also come under fire from environmentalists, who criticise him for advocating for increased fossil-fuel production while also attempting to develop more renewable energy.

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