Pierre Andurand remains bullish on crude oil prices as economies open up in the wake of the pandemic lockdowns.
As we write this piece, crude oil has just hit an oil time high taping 76 USD per barrel following Oil cartel OPEC’s decision to extend its oil production pact beyond April 2022.
“crude oil has just hit an oil time high taping 76 USD per barrel following Oil cartel OPEC’s decision to extend its oil production pact beyond April 2022”
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Supply and demand imbalances are the crux to Pierre Andurand remains bullish on crude oil prices view
On the demand side, US commercial crude oil inventories decreased by 1.6% for the week ending June 18, according to the latest data released by the Energy Information Administration (EIA). Inventories fell by 7.6 million barrels to 459.1 million barrels, which was a higher drawdown than the market expectation of a 3.6-million-barrel draw.
As the economy emerges from the pandemic lockdown, demand for crude oil has risen faster than supply, resulting in a reduction in inventories by about 7 million barrels.
Meanwhile, on the supply side, oil cartel OPEC+ is still withholding some 5.2 million bpd from the market
Known as the Oil production Pact to keep oil prices high. Moreover, there is talk that OPEC + Pact could extent the restrict supply agreement into April 2022.
This week’s OPEC+ producers meeting, July 1, members decided how to proceed with the easing of oil production cuts from August, when the group will have returned around 2 million barrels per day (bpd) from its oil output on the market. Nevertheless, OPEC+ is still withholding some 5.2 million bpd from the market.
“oil cartel OPEC+ is still withholding some 5.2 million bpd from the market”
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So given the recent decrease in crude oil inventories, OPEC+ decided to supply just an extra 500,000 bpd
But oil analysts think that amount is a drop in the ocean, with at least 1 million bpd needed to make a difference in the supply imbalance.
“Saudi has done what they said they were going to do and kept supply off the market” – Michael Hiley
Pierre Andurand remains bullish on crude oil prices believing that the supply-demand imbalances could lead to oil heading higher from an already high price
Some oil players believe crude oil prices could be heading in the mid 80 USD.
“We’ve whittled down inventories, and the daily supply is significantly lower than before this agreement started,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Futures. “Saudi has done what they said they were going to do and kept supply off the market”.
If OPEC+ producers had agreed to supply the market with an extra 1M barrel a day we could get a few dollars correction. But that price correction might not be long-lasting, bearing in mind summer demand for oil in the driving season is about to get started.
But pressure on OPEC+ producers to further ease the cuts is already growing from large oil-importing economies. Moreover, runaway oil prices could shatter the Fed’s view that inflation is transitory, bearing in mind oil prices have an impact on everything from transportation to production costs.
Pierre Andurand remains bullish on crude oil prices but if OPEC+ producers agree under mounting pressure to ease the cuts crude oil price could hit a price resistance.
Nevertheless, the easing of cuts would need to be meaningful, in other words at least an extra 1M Bpd added to supply.
Finally, another wild card to Pierre Andurand remains bullish on crude oil price view is the pandemic. Future lockdowns in autumn, winter could trigger an oversupply, just as OPEC+ is ramping up output.