The rally in oil prices in 2021 is far from over – .

The rally in oil prices in 2021 is far from over – .

Even after hitting the highest levels for several years in recent days, oil prices still have room to rise this winter. At least short-term market fundamentals suggest so, analysts say. Global stocks have fallen below the five-year pre-pandemic average as stocks run out as demand rebounds amid weaker supply response from producers. The energy crisis in Europe and Asia and record prices for natural gas and coal add further arguments to the bullish arguments in favor of oil in the months to come, as the shift from gas to petroleum products such as fuel oil and gasoline. diesel, especially in Asia, is already underway.

The one-year oil futures curve structure also indicates a tight market and room for maneuver for higher crude prices.

Stocks stretch as demand rebounds

On the demand side, recovering economies and mobility have boosted global demand for oil in recent months, leading to inventory reductions that have reduced global inventories below recent averages.

In the United States and across developed OECD economies, oil trade stocks have fallen below pre-COVID five-year averages after more than reversing the huge spring and summer increases of last year, said Reuters market analyst John Kemp. Remarks.

At the last report of the week, US commercial crude oil inventories stood at 427 million barrels, approximately 6 percent below the five-year average for that time of year. Gasoline inventories were approximately 2% below the five-year average, distillate fuel inventories were 9% lower, while propane / propylene inventories were significantly lower by 21% than the five-year average for this period. year, according to the latest EIA data.

In the OECD, commercial stocks in August were 162 million barrels below the five-year average before COVID, according to the International Energy Agency (IEA) noted in its last monthly report last week. Preliminary data for the United States, Europe and Japan show that the ground industry inventories fell an additional 23 million barrels in September.

Related: Exxon Plans To Ditch Major Oil And Gas Projects To Appease ESG Investors Globally, implicit third quarter refined product balances “show the largest circulation in eight years, which explains the sharp increase in refinery margins in September despite significantly higher crude prices,” said ‘OUCH.

The energy crisis in Europe and Asia could further increase global demand for oil by 500,000 barrels per day (bpd) compared to a “normal” market without a crisis in natural gas and coal, the agency noted, emphasizing its forecast for global oil demand for 2021 and 2022.

Supply lags demand as OPEC + keeps market tight

As demand rebounded despite the summer outbreaks of COVID in the United States and Asia, supply additions to the oil market have lagged behind the pace of demand growth.

First it was Hurricane Ida which limited the supply of US oil from the Gulf of Mexico from late August to most of September. Supply will not return to full capacity until early next year, as a platform operated by Shell stay offline until the end of 2021.

At the same time, the OPEC + group continues to keep the market tight, adding only 400,000 bpd each month to its overall offer. This is despite calls from the United States and other consuming countries to turn on the taps and bring high oil prices under control, and despite the energy crisis that has forced utilities to start oil-fired power generation in a context of record natural gas prices, increasing the demand for petroleum products.

OPEC + leaders point to oversupply expected next year and the need to look beyond the next two months in their decision to continue to cancel just 400,000 bpd per month of their cuts.

Saudi Energy Minister Prince Abdulaziz bin Salman essentially last week excluded the option that the alliance would respond to rising oil prices by adding more supply than expected.

“We should be looking way past the tip of our nose. Because if you do that and factor in 22, you will end up by the end of 22 with a huge amount of overstocking, ”he said on Thursday.

Related: Oil Prices Fall As China Consider Market Intervention

Additionally, production figures indicate that OPEC + is in fact pumping well below its collective production ceiling. According to Bloomberg estimations, if all alliance members stuck to their respective production caps in September, the group’s overall production would have been 747,000 bpd higher than it was.

It seems OPEC + isn’t too worried about the destruction of the $ 85 demand for oil, at least not yet. Group executives stress importance of longer-term vision and market stability, expecting supply to increase in 2022 from both their own wells and the patch of US shale , which appears to maintain its investment discipline even at $ 80 worth of oil.

Blowout decline indicates even higher oil prices

At the end of 2021, however, supply remains tight, as the backlash, a key indicator of a tightening market, between the December 2021 Brent contract and the December 2022 contract has jumped. at over $ 8 a barrel in the last days. This is the largest 12-month Brent shift since 2013, according to Refinitiv Eikon data cited by Reuters.

“The energy crisis is carving out an oil floor of 80 USD / b”, Japanese bank MUFG noted in its Oil Market Weekly report last week.

“The explosion in Brent crude over the past few trading days indicates that the [to] even higher oil prices remain firm, ”the bank’s research team wrote.

By Tsvetana Paraskova for OilUSD

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