Moderating Prices?

This weekly report is an excerpt from our Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.  Contact John Paisie (+1-832-517-7544 or E-mail) for the detailed analysis or for more information about the Short Term Outlook.


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The price of Brent crude ended the week at $104.39 after closing the previous week at $117.37. The price of WTI ended the week at $99.42 after closing the previous week at $113.90.

Oil prices reached $121.60 on the previous Wednesday (March 23) then started falling when the market realized the following:

  • The attack on Saudi Arabia did not affect Saudi Arabia’s ability to export crude oil
  • The interruption in exports from the CPC pipeline would be brief and not have as significant impact on volumes as initially thought by some
  • The EU would not be imposing sanctions on hydrocarbon exports from Russia, including crude oil and oil products

There also has been growing concerns about the increase in COVID-19 cases in China, and the impact on its own economy, as well as the economies of trading partners that are dependent on key inputs from China’s manufacturing sector.  

Further pressure on oil prices came last week from the announcement last Thursday by the Biden Administration of another release from the SPR beyond the 30 million that is part of the 60 million release that was coordinated by the IEA. The new release will be equivalent to one million b/d for the next six months starting in May (180 million barrels) which will be the largest in history. Biden also indicated that allies of the US could release an additional 30 to 50 million barrels.

Additionally, as we expected, OPEC+ announced at its last meeting on Thursday that it would increase supply by 432,000 b/d, even though members of OPEC+ are continuing to struggle with increasing production and are underproducing with respect to current quotas. While there have been recent issues with producers such as Libya and Nigeria – we are always expecting that there will be issues that will affect production. Consequently, the production levels of OPEC+, while under the quota, are in line with our forecasts for 1Q and 2Q of this year.

Prior to the Russia-Ukraine conflict, we were forecasting that the oil market would be moving into balance during 2Q of this year. With the advent of the conflict, we are expecting that supply will be less than our previous forecast by around 1.60 million b/d. The revised forecasted supply assumes that the sanctions on Russia oil exports will not be expanded, and that Russia exports to Europe will be reduced by around 1.50 million b/d, which will be partially offset by increased exports to Asia, including China and India. We have also reduced our forecast for non-OPEC production by around 200,000 b/d.

While we are expecting that oil supply will be less than our original forecast, we also are expecting that demand will be less than our previous forecast by some 0.650 million b/d. The revisions to the supply and demand result in the market only be short by around 950,000 b/d in 2Q of this year (without accounting for SPR releases). As such, while the oil market will remain tight, the price of Brent crude is expected to remain between $95.00 and $115 and overly sensitive to news flow. However, unless there is some dramatic change to the supply situation, we are not expecting significant spikes in oil prices. Furthermore, if the Russia-Ukraine conflict can be resolved through a negotiated settlement, we are expecting that oil prices will fall back below $90.00. 

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