Goldman Sachs predicts that oil prices could reach $100 a barrel by the end of the year. Many consumers are afraid of the costs of further inflationary pressures that have arisen in the commodity landscape this year.
Global oil supplies are showing signs of danger as the winter season approaches. Summarizing the Reuters inventory dilemma, global liquid fuel consumption fell by about 2.1 million barrels per day in September compared to the same month in 2019, caused by a pandemic. However, global production fell by 2.8 million barrels per day during the same period, causing the market to run a deficit.
During the first wave of the pandemic, commercial oil reserves increased by 335 million barrels. However, stocks have since shrunk by 425 million barrels due to the strong recovery of the global economy and limited production. As a result, OECD commercial inventories reached 145 million barrels by September, down 5% from two years earlier.
OPEC + increases its production by 400,000 barrels per day every month. Despite President Joe Biden’s call for further output growth, it has so far refused. OPEC + cited uncertainty about global recovery and the risks of additional pandemic-related constraints as a reason for other increased cautions.
OPEC + faithfully plays its line and favors high price periods during which its members enjoy better returns if they think prices might fall in the long run.
U.S. slate manufacturers have not yet been able to fill the gap as they have for the past decade. Like OPEC +, shale drilling shareholders prefer a better return than investing in increased production. Shale oil and gas producers say that while current prices are profitable, the pressure of inflationary costs makes the significant growth costs of drilling activities unattractive.
The EIA predicts that OECD stocks will increase next year, albeit by only 85 million barrels. That leaves only 2.83 million barrels in stock by the end of 2022, the lowest since 2014.
There are several potential offenders. Iran can achieve a breakthrough in the nuclear deal with the West. As a result, Iran’s output may increase, although progress is plodding under a strict new administration and minor prospects.
Growth and demand may slow faster than expected. China is slowing down both in terms of construction activity and output. According to Trading Economics, September’s GDP growth was only 0.2% at 1.2% in the same month last year. However, whether the power outage will continue in the winter is unclear.
OPEC + does not intend to increase production for the benefit of consumers. The high prices of the pump are likely to remain the same next year. Will the oil reach $100 a barrel by the end of the year? We will find out very soon.