The 2021 oil price rally is far from over

According to the oil price network news on October 20, the oil price rally is far from over, and the decline in global inventories indicates that the market is far from balanced
.
OPEC+ doesn't seem eager to add supply to the market, and production appears to be below its self-set production cap
.
The Brent spot premium hit its highest 12-month level since 2013 and is another bullish indicator
of oil prices.

Even after reaching its highest level in several years in recent days, oil prices have room
to rise further this winter.
At least short-term market fundamentals suggest so
, analysts say.
Global inventories have fallen below their pre-pandemic five-year average, inventories are drying up, and demand is rebounding
as producers' response to supply wanes.
The energy crises in Europe and Asia, as well as record gas and coal prices, provide more reason to be bullish on oil in the coming months, as the shift from natural gas to petroleum products such as fuel oil and diesel has already begun, especially in Asia
.

The structure of the oil futures curve a year later also indicates that the market is tight and crude oil prices still have room
to rise.

As demand rebounded, inventories fell

On the demand side, economic recovery and liquidity have boosted global oil demand in recent months, leading to lower inventories and bringing global inventories below recent
averages.

Reuters market analyst John Kemp pointed out that commercial oil inventories in the United States and OECD advanced economies as a whole have fallen below the average of the five years before the pandemic, and the huge inventories in last spring and summer have reversed
.

As of the latest report this week, U.
S.
commercial crude inventories stood at 427 million barrels, about 6 percent
below the five-year average for the same period this year.
The latest EIA data shows gasoline inventories are about 2 percent below the five-year average, distillate inventories are 9 percent below and propane/propylene inventories are 21 percent
below the five-year average for the same period this year.

The International Energy Agency (IEA) said last week that OECD business inventories in August were 162 million barrels
below the five-year average before the pandemic.
Preliminary data from the United States, Europe and Japan showed onshore oil inventories fell by a further 23 million barrels
in September.

Globally, refined product balances in the third quarter "showed the biggest gap in eight years, which explains the strong growth in refining margins in September
, despite a sharp rise in crude prices," the IEA said.
”

The IEA noted that the energy crisis in Europe and Asia could increase global oil demand by 500,000 barrels per day and raise global oil demand forecasts
for 2021 and 2022 compared to "normal" markets without gas and coal shortages.

OPEC+ keeps the market tight and supply lags behind demand

Despite the coronavirus outbreak in the United States and Asia this summer, supply growth in the oil market has been lagging the pace
of demand growth.

First, from late August to most of September, it was Hurricane Ida that limited U.
S.
oil supplies
from the Gulf of Mexico.
As the platform operated by Shell will remain offline until the end of 2021, supply will not return to full capacity
until early next year.

Meanwhile, OPEC+ continues to keep the market tight, adding only 400,000 b/d of total supply per month
.
Despite calls from the United States and other oil-consuming countries for the opening of restrictions to curb high oil prices, and despite the energy crisis forcing utilities to increase oil-fueled power generation
at a time when record natural gas prices have boosted demand for petroleum products.

In deciding to continue cutting crude oil production by 400,000 barrels per month, OPEC+ leaders pointed out that the expected oversupply next year needs to look to the next two months
.

Saudi Energy Minister Prince Abdel-Aziz bin Salman last week largely ruled out the possibility
of the coalition responding to higher oil prices by adding more supply than planned.

"We should take a long-term
view.
Because if you do that, and take into account the situation in 2022, you're going to face a massive inventory glut by the end of 2022," he said
on Thursday.

In addition, the production data suggests that OPEC+ actually produces well below its collective production ceiling
.
According to Bloomberg estimates, if all members of the alliance stick to their respective production caps in September, the group's total output will be 747,000 b/d
higher than it is now.

It doesn't look like OPEC+ is too worried about $85 oil prices leading to reduced demand, at least not for now
.
The leaders of the coalition emphasized the importance of a long-term vision and market stability, with both their own wells expected to increase supply from both their own wells and U.
S.
shale regions in 2022, and capital expenditures in U.
S.
shale regions remain unchanged
even at $80.

The "blowout" spot premium heralds further higher oil prices

However, supply remained tight at the end of 2021, and the spot premium between the December 2021 Brent contract and the December 2022 contract, a key indicator of market tightening, has jumped above
$8 per barrel in recent days.
Reuters quoted data from Refinitiv Eikon as saying it was the largest 12-month
spot premium for Brent crude since 2013.

Japan's MUFG Bank said in its Oil Market Weekly report last week: "The energy crisis is creating a floor of $80/b for oil prices
.
"

"The blowout of Brent crude spreads in recent sessions suggests that the path to further higher oil prices remains solid
," the bank's research team wrote.