Rystad Energy: Oil Markets Steady, Awaiting Supply News
Oil markets are walking a tight rope today as the specter of the Omicron variant appears to be waning in many parts of the world, encouraging countries to relax restrictions and boosting crude demand as a result.
Rising demand often comes hand-in-hand with upward price movements, but a long-awaited supply relief could be around the corner, helping to narrow the imbalance and cool market sentiment.
Market hawks are closely watching the US-Iran nuclear negotiations for any deal that would reintroduce up to 1 million barrels of Iranian crude into the market, a supply boost that could bring almost immediate relief to high prices.
Global oil supply remains tight as OPEC+ has been unable to meet previously agreed production targets, and Iranian barrels are still technically off the market.
Dropping Covid-19 infections is spurring a return to normality in most countries, boosting demand in what is usually a weaker early winter slump, driving expectations that maybe the world may return to pre-pandemic oil demand levels earlier in 2022 than expected.
Geopolitical uncertainty in Eastern Europe and the potential impact of military conflict on trade flows is keeping the bullish oil price sprint supported.
If the WTI benchmark remains in the $90 to $100 per barrel range, incremental production growth is definitely possible, especially from US shale which could grow by up to 900,000 bpd in 2022 versus last year.
Other producers are also performing, with Norway’s Johan Sverdrup ramp up also adding incremental supply barrels, while elevated prospects of Canadian oil sands production could help bridge the supply gap.
Heightened oil prices are also flexing their muscles in the currency exchange, with countries dependent on crude exports benefiting, including the Russian ruble, Norwegian kroner and Canadian dollar.
But downside supply risk still seems to drive the market, and disruptions in Libya, the UAE, and elsewhere would impact not only short-term supply but also grander upstream developments into the future.
