STAVANGER (Nettavisen 🙂 – I have never seen such a calculation before, says DNB’s oil analyst Helge André Martinsen.
At an oil seminar under the auspices of the Business Association in the Stavanger region, Martinsen talks about the moment he realized that the world could run out of spare production capacity towards the end of 2022.
What does that mean?
If the world’s demand for oil increases throughout the year, no one can respond by pouring a corresponding amount of oil on the market. This is happening at the same time as the import of oil from Russia can be banned in large parts of the EU.
– I think the oil price will increase significantly, and at least to 130 dollars a barrel towards Christmas. It will be an unpleasantly tight market, says Martinsen and continues:
– For Norway, this looks super bright. But for the world, this is not good. Especially in a time of increased inflation as well.
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Biden thinks he made a huge mistake
Slowly but surely, the world’s oil reserves have been depleted. Between July 2020 and March 2022, 1.2 million barrels of oil were released to the market every day from OECD countries. Inventories are now at their lowest since 2005.
In light of the invasion of Ukraine, US President Joe Biden announced in March that the country would further drain its own strategic oil reserves. It was the third time in six months that the United States used its own oil reserves to increase the supply of oil – to avoid an even higher oil price.
According to DNB and oil analyst Martinsen, US oil inventories in October will be at their lowest level in nearly 40 years if use continues as planned.
– Strategic stocks are something we have in case we are in huge trouble. Now Biden is sending the oil stocks down to levels we have not seen since 1983. He has pressed the big alarm button before it has been necessary, and the stocks have become a political tool. Now the world has nothing to do until the autumn, and he can not press that button again for a while, says Martinsen at the seminar called The oil pressure.
Why can this be a big problem? Martinsen lists:
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“Nobody” in the West wants Russian oil anymore. According to the IEA, the world will lose access to three million barrels of Russian oil every day due to sanctions and lower Russian oil production.
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The OPEC cartel is unlikely to step up production more than promised for fear of inciting Russia, which is an important part of Opec + cooperation. In addition, the Opec countries have historically produced far less than promised in the past year.
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What about the flexible American shale oil? DNB expects production at an “all time high” towards the end of the year. But production is not growing as much as before, and Martinsen questions how much capacity the Americans really have.
This is happening at a time when demand for oil is expected to increase, in a world that has not yet fully recovered from the corona pandemic:
Millions of Chinese are still stuck in shutdowns. Globally, the world’s population does not fly as much as before, but the booking figures indicate a very strong summer.
– I fear that we will run out of spare production capacity towards the end of the year. We are in an extremely vulnerable state, and we have fired off the strategic stocks far too soon, says Martinsen.
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On the way to a new super cycle
After peaking at close to $ 130 a barrel in March, oil prices have fluctuated between $ 98 and $ 112 a barrel in April and May. However, DNB predicts that we will again be up to 130 dollars per barrel towards the end of the year.
What does it take for demand to stop growing? Martinsen fears that the oil price must skyrocket to kill demand, as the most effective tool.
– Then we can quickly see $ 150 a barrel. We do not want to be there. We all know that this is a cyclical industry, and it always ends in tears when the price goes so high, says the DNB analyst.
Another scenario that causes oil prices to fall may be that Russia and Ukraine enter into a peace agreement, and that sanctions against Russia are rolled in. But Martinsen does not consider it probable that the year will be over.
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