Oil prices tanked to six months low earlier this week, trading at the lowest since Russia-Ukraine war broke out. The global supply chain concerns and the leaders’ capacity to pump more oil remain unchanged from six months ago. It is the demand side that appears to have the upper hand at the moment. While it may not necessarily be 2008 all over again, but economic slowdown around the globe is very much a certainty, if not a full-blown recessionary cycle.
Market observers had all eyes set on Biden’s Saudi visit, expecting the Kingdom to agree to pump more oil and soon. That never happened. In fact, Opec+ latest meeting ended with an understanding of an insignificant increase of 100,000 barrels per day. Recall that the previous addition was a more significant one at 648,000 barrels per day. From the balance perspective, the planned hike is the lowest in over 35 years, and the impact would be next to nothing. That did notsendoil bulls racing as it ordinarily would. That is largely because Asian demand for the rest of the year has so far sent mixed signals.
That said, it is not all catastrophic yet, in terms of demand growth. China and India will hold the key for demand projections, and so far, the import numbers have held firm, without growing appreciably from last year. While the market reaction to Opec+ tiny oil output hike may signal the cartel’s diminishing significance, it remains relevant.
That is where the warning by Opec+ that suppliers remain chronically under-invested still weigh heavily on what the future holds. The statement noted the severely limited availability of excess capacity, drawing the “Call on Crude” closer than ever before. Meanwhile, the likes of US EIA have continued to maintain projections of strong demand growth in 2023, as supply disruptions are happening way too often, for the market to remain balanced – keeping the premium high.
The super cycle may well have ended, but it may not be the end of high oil prices just yet. The market continues to remain too tight for any extended sense of relief. The Opec+ miniscule, planned output increase too, carries more political significance, as it disregards the USA’s strong diplomatic efforts. Russia’s influence on the group continues to remain firm. The imbalance is here to stay.
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