Reasons for bullish oil prices in 2022

OPEC+ is still far from reaching its total quota

The upcoming oil glut may be much less than expected The downward pressure on oil prices is likely to be much smaller this year

Demand remains strong The spread on the 6-month Brent crude oil contract has more than doubled since hitting its low in December

In early 2022, a spike in Omicron cases and record cases in many major economies, coupled with an expected oversupply in the oil market, gave bear market theorists a reason to cheer

Oil prices rose 5% in the first trading cycle of the year, as analysts were concerned that the oversupply may not be as severe as predicted a few months ago, but also because inventory levels were very low
at the end of 2021, oil prices reported today.
In addition, oil production fluctuates widely
in many geopolitically sensitive regions of the world.

Forecasters and analysts say the development of the pandemic will continue to be the biggest uncertainty for the market this year, but global oil average demand is expected to begin to surpass pre-pandemic levels
in 2022.

From 2021 to 2022, demand will grow further unless there are new mass lockdowns
in many places.
Most analysts predict that supply will undoubtedly grow beyond demand
.
Not only will OPEC+ continue to cut production, but non-OPEC+ producers, led by the United States, will also increase supply, especially at the $80 per barrel oil price level, which means that both OPEC+ producers and non-OPEC+ producers will increase
production.

Still, some analysts, including Julian Lee, oil strategist at Bloomberg First News, said the upcoming oil glut could be much smaller than expected and could put much less downward pressure on oil prices this year
.

First, OPEC+ is far from reaching its overall quota
.
Sluggish investment and a lack of spare capacity in OPEC members, particularly in Africa, have left OPEC+ monthly output growth well below 400,000 b/d, of which 253,000 b/d is allocated to the 10 OPEC members bound by the OPEC
agreement.

Last month was the seventh consecutive month OPEC+ failed to increase production and the fifth consecutive month that production fell below target of 500,000 b/d
, according to OPEC data collected by Bloomberg and Bloomberg Lee.

OPEC+ production in December 2021 was 625,000 b/d below its overall production target, up slightly from 655,000 b/d
in November, according to Bloomberg estimates.

The situation for OPEC is no better, as production is declining
in African members.
OPEC oil production rose just 70,000 barrels per day in December from November after the group failed to raise production by 253,000 barrels
per day under the OPEC+ deal, according to a Reuters monthly survey.

In addition, although the organization expects a surplus in the market this year, it is likely to decrease
compared to last month's assessment.
As OPEC stated in its monthly oil market report in mid-December, OPEC+ continues to view Omicron's impact on demand as "mild and short-lived.
"

Spare capacity is decreasing

However, all oversupply forecasts rely on the assumption that OPEC+ will meet its production targets, but it has failed to do so
for seven months in a row.

OPEC+ has been missing its collective production target for months and is likely to continue to do so
in the coming months.
African OPEC members lack the capacity and investment to boost production, while Russian production and exports are estimated to be below quotas
.
Insufficient production could even be a positive factor for oil prices in 2022, especially if
Omicron's impact on global oil demand remains limited to jet fuel.

The largest producers in the Arabian Gulf have the ability to increase production and meet OPEC+ quotas, but this will of course reduce their spare capacity, which is the main source of
global spare capacity.

With low spare capacity, mainly concentrated in Saudi Arabia, the United Arab Emirates and Kuwait, sudden supply disruptions in 2022 will push up oil prices
.

Warren Patterson and Wenyu Yao, strategists at ING, said: "OPEC+ spare capacity is a supply-side concern that will not go away
anytime soon.
" Only a few member countries have the capacity to increase production, while others have not been able to reach agreed production levels due to supply disruptions and lack of investment"
.

Goldman Sachs is very bullish on the oil sector in 2022 and beyond because of low investment and the fact that only two oil-producing countries, Saudi Arabia and the UAE, currently have the ability and means to extract more oil
than before the pandemic in January 2020.
Jeff Currie, global head of commodity research at Goldman Shuas, said in an interview that everyone else is struggling
.

Ole Hansen, head of commodity strategy at Saxo Bank, said: "Overall, demand remains strong, the spread on the six-month Brent crude oil contract has more than doubled since December, and there is little concern about the impact of Omicron on demand"
.

Lower-than-expected supply growth could soon remove the certainty of a large oil glut, as uncertainty and volatility will continue to be the only two things
that are certain in the oil market this year.