International oil prices hit a seven-year high, approaching $100

For 7 consecutive weeks, the international oil price has been strong and rising like a rainbow, constantly setting new highs in more than seven years. As of press time, the price of Brent crude oil futures in London for April delivery was at $92.74 per barrel, and the price of WTI crude oil futures for March delivery on the New York Mercantile Exchange was reported at $91.32 per barrel. Surging demand and sluggish supply have fueled calls for more bullishness, as if $100 oil was within reach.

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The recent surge in international oil prices is the result of a combination of multiple factors, including demand recovery, ongoing tensions between Russia and Ukraine, OPEC+ maintaining a small production increase plan without fear of pressure from the United States, and a snowstorm that may affect oil well operations in Texas. The sharp rise in oil prices has quickly "recovered" oil companies that have been hit hard by the epidemic, but crude oil at this price level will also exacerbate global inflationary pressures, causing headaches for central banks and governments around the world.

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Energy strategist Daniel Yerkin, vice chairman of IHS Markit, concluded on social media that oil prices reflect "a crisis-ridden market" under tight supply and demand fundamentals (rising demand and constrained capacity) (Geopolitical tensions in Ukraine and beyond).

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In 2008, the international oil price once rose to more than 140 US dollars. Since then, the production of shale oil in the United States has increased rapidly, OPEC refused to reduce production and started a price war, and the oil price fell sharply. When oil prices slowly returned to the $60s and 70s, the new crown pandemic destroyed demand, oil prices fell to the bottom, and for the first time in history, negative oil prices appeared. The two major crude oil futures, the world's main benchmark for pricing crude, have risen about 17 percent since the start of the year as demand recovers.

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The international oil price has hit a new high for seven consecutive years, and the next step is to go straight to 100 US dollars?

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WTI oil price trend

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How far is oil prices from returning to triple digits?

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OPEC and its allies (OPEC+) met on February 2 and decided to maintain a production increase of 400,000 barrels per day in March. However, there are doubts that the above-mentioned output increase target can be achieved, because some members of the alliance have been unable to meet quota targets in the past few months. Data obtained by S&P Global Platts showed that the 19 countries with quotas produced 832,000 barrels a day less than targeted production in December 2021. If it continues, this will exacerbate the tight supply in the market and bring upward pressure on oil prices.

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Goldman Sachs, which has always been bullish, was the first investment bank to call out that oil prices would exceed $100 a barrel. Goldman Sachs forecasts that Brent crude will hit $100 a barrel by the end of the third quarter of this year.

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In late January, analysts at Morgan Stanley said that the crude oil market was facing low inventories, low spare capacity and low investment at the same time. Barrels are $100 and $97.50.

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Bank of America has also raised its forecast for oil prices, predicting that Brent and WTI oil prices will reach $120 and $117, respectively, by July this year. JPMorgan believes that if geopolitical risks escalate, oil prices could rise to $120 a barrel.

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CITIC Futures believes that from a fundamental point of view, OPEC+ may not be able to achieve full production before May. Although there are signs of acceleration in U.S. production, the growth is still slow, and tight supply continued in the first quarter; refinery cracking profits hit a new high, supporting The start of construction remains high, the terminal gasoline consumption rebounds, the diesel consumption remains high, and the jet fuel consumption is still recovering, and there is no sign of demand turning around.

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Shale oil remains a key determinant of price action.

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ConocoPhillips said recently that traders should worry about a repeat of the surge in shale oil supplies of the past decade after strong U.S. crude production growth this year and next. ConocoPhillips also raised its forecast for growth in U.S. crude production this year after Exxon and Chevron announced plans to significantly boost production in the Permian Basin. U.S. crude oil production will grow by as much as 900,000 barrels a day this year, CEO Ryan Lance said on a conference call.

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That's more than a third higher than the International Energy Agency's forecast. For the global market, a rapid rebound in shale oil production will create more variables. For example, in the last round of shale oil production surge, OPEC took the initiative to launch a price war.

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Oil prices are unlikely to rise to $100 a barrel, at least until 2022, the research team at energy consultancy Wood Mackenzie predicted in its annual outlook. The company believes that under the influence of OPEC+, the crude oil market will return to balance again in 2022. Demand will rise by an additional 4.5 million bpd in the third quarter, returning to pre-pandemic market demand levels of 100 million bpd, while supply will increase by an additional 4.8 million bpd, about half of which will come from OPEC+. Looking at inventories, crude oil will be in surplus in the first quarter of 2022 - no shortages are expected. “Brent crude prices will average $70 a barrel in 2022, slightly below the 2021 average.”

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However, Wood Mackenzie also pointed out that the Russia-Ukraine issue and Belarus/Poland/EU are potential flashpoints that may pose a threat to the crude oil market.