Energy crunch: How high will oil prices rise? | Business and Economic News

Oil prices continued to climb on Monday. The global benchmark Brent crude oil price was close to US$80 per barrel, the highest price since October 2018. The tight supply pushed up crude oil, and demand recovery in some parts of the world was even faster than the most optimistic analysis. The teacher expected it to be faster.

As of 4:06 pm Eastern Time (20:06 GMT), Brent crude oil rose 1.73% to $79.44 per barrel, rising for three consecutive weeks. US benchmark West Texas Intermediate crude oil futures rose 2.04% to US$75.49 per barrel, the highest level since July.

The current rebound has caused Goldman Sachs analysts to raise the bank’s year-end forecast for Brent crude oil from US$80 to US$90 per barrel. Goldman Sachs said in a report to investors on Monday that the current global oil supply and demand deficit is larger than initially expected.

“I think the drama we currently see in the market is a collision of three great forces,” Reed Blackmore, deputy director of the Atlantic Council’s Global Energy Center, told Al Jazeera.

“In the past year, the impact of long-term demand uncertainty caused by COVID-19 on supply-side management; policy-driven structural changes in the transition to a net-zero world; and, even in the context of the global energy transition, adequate investment and development of oil and gas The reality that the supply of natural gas is still vital to market stability,” he said.

Oil price collapse In April 2020, the coronavirus pandemic stopped global economic activity and reduced the demand for crude oil. But this year’s retreat of pandemic restrictions, as well as business reopening and rising vaccination rates have prompted a recovery in global crude oil demand.

However, economic recovery is not the only reason for the current rise in crude oil.

Last month, severe power outages related to Hurricane Ida Hit supply It also offset the increase in OPEC+ production that EU member states agreed to increase in July last year.

A few days after Hurricane Ida swept through Grand Island, Louisiana, the damaged electrical wires and houses could be seen [File: Leah Millis/Reuters]

The Organization of Petroleum Exporting Countries and its allies, the OPEC+ group led by Russia and Saudi Arabia, tightened supplies when the pandemic first hit and prices plummeted.After pushing these prices out of the abyss, they agreed Loosen slowly Tap and allow more barrels to enter the global market. The cartel is scheduled to hold a meeting on October 4, and on Tuesday, OPEC will release a snapshot of its “World Petroleum Outlook” on the direction of the market.

According to the International Energy Agency (IEA), the global Consumed Before the COVID-19 pandemic caused fuel demand to collapse, oil production in 2019 was 99.7 million barrels per day (bpd). As the global economy recovers, the IEA predicts that crude oil demand will return to pre-pandemic levels sometime next year.

Blackmore told Al Jazeera: “With the continued tightening of natural gas supplies in the European market and the slower-than-expected recovery of U.S. production affected by Hurricane Ida, we may see prices continue to rise immediately.”

“Even if OPEC expects to relax another 400,000 barrels of supply restrictions next week, due to increased concerns about the global supply situation, we are likely to only see the beginning of a more significant price increase in the next few weeks/months. Focus,” he said. “If we end with a cold winter, things will definitely get worse.”

Bulls and bears

“What could go wrong” is a question that Goldman Sachs analysts pondered in their investor report. They do not rule out the possibility that the new coronavirus variant will render the vaccine ineffective and ultimately undermine the economic recovery.

But beyond that, Goldman Sachs said that the bull market driven by the shortage of oil supply will continue for at least some time.

Goldman Sachs analysts said that OPEC+’s decision to “significantly accelerate production growth before the end of the year will ease (but not destroy) our projected deficit and will only further delay the rebound of shale oil.”

They pointed out that given the insufficient investment in oil services by 2023, this move will strengthen the structural nature of the next rebound.

“In addition, the substantial increase in OPEC+ production will only accelerate the decline of global idle capacity to historical lows, replacing the cyclically tight market with a structured market,” Goldman Sachs said.

But some analysts said that there are still short-term risks in the upcoming rebound.

Louise Dickson, senior oil market analyst at Rystad Energy, said in a report on Monday: “As investors choose to take profits, or in the long run, as the economic recovery is weak, commodity prices fall to even lower highs. , The rally may disappear.”.

But again, there are always weather and natural disasters that no one can control.

“Although Hurricane Sam is currently not expected to be as strong as the storms before this season, it may… exacerbate concerns about the energy crisis, not only boosting oil and natural gas futures, but also propane, diesel and fuel oil,” Dixon Added.

Russia can cool down prices by increasing production. After reopening one of its refineries, Kazakhstan is increasing production. Analysts will focus on China this week, because its current power shortage may lead to a decline in production.