Oil prices may usher in a hot summer

OPEC and its allies are leaving less and less supply in their efforts to resume oil production, which could lead to a hot summer
for crude prices, Rigzone reported on Jan.
19.

From Nigeria to Russia, sluggish investment and civil unrest have faltered alliance members, and the task of meeting a strong recovery in world fuel consumption has fallen to a handful of Middle Eastern producers
.
As production ramps up, untapped supply retained in response to emergency disruptions will become increasingly volatile
.

Martijn Rats, oil strategist at Morgan Stanley, said that "the oil market seems to be entering a period of little safety, and prices will need to rise to a level where demand is somewhat weakened"
.

The July holiday travel season will push global fuel use to more than 100 million barrels per day, and the world's reserve capacity will be held almost entirely by Saudi Arabia, the United Arab Emirates and Iraq, and may only be 2.
3 million barrels per day, the lowest level
since 2018.

While the relationship is not absolute, periods of low spare capacity tend to be associated with price increases and vice versa, as traders either gain confidence in the supply available at the time of the crisis or feel anxious
.
Crude oil soared to an all-time high of nearly $150 a barrel in 2008, when oil reserves became very low
.

That makes the difficult situation of OPEC and its partners a worrying prospect
for oil-consuming countries.
As global fuel demand withstood the Omicron shock, international crude oil prices are already at a seven-year high of more than $85 a barrel
.

This has fueled inflationary pressures, created a cost-of-living crisis for millions of people, and jeopardized the global economic recovery
.
Emily Horne, a spokeswoman for the National Security Council, said in a statement that the White House is closely monitoring the situation and working with producers, including OPEC+ members, to ensure supply growth to meet demand
.

If the IEA's predictions prove correct that the United States, Brazil and Canada will resume record oil production later this year, the crisis will subside
.

OPEC+ is gradually resuming the large supply that was stopped during the pandemic, gradually returning to 400,000 b/d
per month.
But in fact, with countries such as Angola and Nigeria facing reduced spending and operational disruptions, much less new oil production has been added
.

Oman's oil minister, Mohammed Rumi, said in an interview in Riyadh on January 12 that "it will not be easy because there is a capacity problem
.
" Investment in the industry has been limited over the past five years, and we are now paying the price.
"

In December, the 10 OPEC countries in the deal completed only 60 percent
of the mandated 250,000 b/d increase.
The crisis extends to the entire OPEC+ alliance, and even Russia, the bloc's second-largest producer, failed to increase production in December, and the country is expected to achieve only half
of its quota production in the future.

Goldman Sachs Group Inc.
Jeff Currie, head of commodity research, said: "Russia is not even able to meet the OPEC+ target
right now due to a lack of investment.
There are currently only two countries that can produce more than in January 2020, namely Saudi Arabia and the UAE"
.

It's not just OPEC+ that has cut production, but investment in new supply plunged 30%
in 2020 due to falling oil prices, according to the Paris-based International Energy Agency.
U.
S.
shale producers continue to limit drilling spending while returning capital
to shareholders after years of capital depletion.

As the burden on heavyweight producers in the Middle East increases, spare capacity reserved to provide a cushion in the event of a supply disruption will be depleted
.
This could expose global markets to the risk of supply outages, which remain a threat
that cannot be eliminated.

According to Bloomberg calculations, by July, when U.
S.
motorists hit the road on vacation and Persian Gulf exporters burn more fuel at home, OPEC+ holding spare capacity may have been reduced to just 2.
3 million barrels
per day.
According to the International Energy Agency, the last time capacity came close to this level was in the fourth quarter
of 2018.

If OPEC+ continues to supply energy at the current rate, the buffer supply will become even smaller
in the second half of the year as the group resumes remaining idle supply.

Francisco Smith, global head of commodities and derivatives research at Bank of America? Francisco Blanch said that "2022 will be a year of tight supply as demand recovers"
.