Crude oil experienced another week of wild swings with the initial but later deflated threat of Russian supplies being curbed due to sanctions driving Brent crude oil above $105 and WTI above $100 for the first time in seven years. After surging 15 dollars in a matter of days, crude oil then gave back more than half of those gains ahead of the weekend after US sanctions stayed clear of targeting Russia’s ability to export crude oil. In addition, traders had to deal with the potential impact of another release of oil from US strategic reserves as well as ongoing Iran nuclear talks where an agreement would increase supply.
OPEC+ meets next week but at this stage the group has shown no inclination to increase production, primarily due to the fact many producers are already struggling to reach their production targets while Russia, if allowed, is likely to hit its production limit within months. With this in mind, the oil market is likely to remain supported with an easing of tensions unlikely to send prices down by more than ten dollars.
With Saudi Arabia being one of the few producers with a meaningful amount of spare capacity not showing any willingness to add additional supplies, the market has increasingly turned its attention to Iran and renewed efforts to revive the nuclear accord. An agreement could according to the IEA add 1.3 million barrels per day, an amount that would help stabilize but probably not send prices lower.
Global oil demand, barring any sharp economic slowdown, is not expected to peak anytime soon and that will add further pressure to available spare capacity, which is already being reduced monthly, thereby raising the risk of that current high and even higher prices will remain for longer.