The recent hike in international crude oil prices has been a mix of fundamentals and geopolitics. Brent crude oil price touched $90 a barrel recently.
Many are calling $90 a barrel just the beginning of an expensive year. There are too many factors at play for driving the crude oil price and its outlook up north while the world is already grappling with inflation and monetary tightening. Among the fundamentals, it’s the robust and stronger demand amid shrinking supply prospects. OPEC supply prospects are not positive and the decline in capacity is primarily stemming from underinvestment in capacity. JP Morgan is seeing OPEC’s spare capacity to decline in 2022, which is a big enough factor for elevated crude oil prices throughout the year. It has forecast a price of $125 and $150 a barrel for 2022 and 2023, respectively. IEA too has warned of a shrink in OPEC spare capacity
Not only OPEC, the crude oil inventory in the US is slipping tightening the supply and pushing crude oil prices up. Also, the market is noticing shifting focus of the US from producing oil and gas to greener energy, which is further driving supply dynamics for crude oil not so rosy.
Other market global factors for bulls run in crude oil prices is the easing concerns on Covid as well as weakening US Dollar.
Geo political tension due to Libya and Ukraine is further adding fuel to the crude oil price surge. While geo political factors could be counted as temporary and short term, all other factors have long term consequences be it the debilitating spare capacity and underinvestment, energy focus shift, or vigorous demand all across. While this all does not sound exciting for the world, it certainly does not spell well for oil importing countries like Pakistan already struggling with inflation.
In the beginning of the year, OPEC + had decided to stick to the script of adding barrels to the market. The group is scheduled to meet today to address rising prices and tight market situation.
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