Goldman Sachs Predicts Crude Oil To Breach $100 Barrel In Q3. Check Reasons Behind Expected Surge

Global oil demand is expected to be rising 3.5 million barrels per day (bpd) year-on-year in 2022, with fourth-quarter demand reaching 101.6 million bpd

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New Delhi: In new high Brent crude prices, the international benchmark for crude oil prices in the world crossed the $89.13 a barrel, its highest level since 2014, according to Reuters. Going by the latest estimate of Goldman Sachs, crude prices are expected to breach the psychological barrier of $100 per barrel in the third quarter, according to Bloomberg News.

On Wednesday crude futures settled at $88.44 a barrel after a fire on a pipeline from Iraq to Turkey briefly halted flows, raising concerns about an already tight short-term supply outlook.

Supply concerns continued to sustain this week after Yemen's Houthi group attacked the United Arab Emirates, Opec's third-largest producer while Russia, the world's second-largest oil producer, has increased its troop presence near Ukraine's border, stoking fears of invasion.

What are concerns going ahead?

Global benchmark Brent crude has jumped 25% to around $88 a barrel since the end of November. Some in the market now think it’s now a question of when -- not if -- oil hits triple digits, somewhere it hasn’t been since 2014 according to a report by Bloomberg.

The report states the global oil market stares at a "surprisingly large deficit" as demand hit from the Omicron coronavirus variant is so far smaller than expected.

Global oil demand is expected to be rising 3.5 million barrels per day (bpd) year-on-year in 2022, with fourth-quarter demand reaching 101.6 million bpd.

While OECD inventories to fall to their lowest level since 2000 by summer, and OPEC+ spare capacity to decline to historically low levels, given the lack of drilling in core-OPEC and Russia struggling to ramp up production.

"We expect the increase in OPEC+ production to fall even further short of quotas in 2022, with an only 2.5 million bpd increase in production expected from the next nine hikes."

At such a level, crude would add to the existing inflationary pressure in the global economy causing concerns for central banks and governments.

Demand is resuming with spot market cargoes being purchased at sharply higher premiums, according to a Bloomberg report. It’s the same in the product space. Middle-distillate stockpiles at the Asian energy hub of Singapore have seen a sharp fall since 2013. With a shortage of diesel, and even jet fuel, the oil product impacted by the pandemic, is reviving as long-distance air travel starts to resume. Unless a major virus outbreak in China or worrisome new strain emerges, it’s hard to see a demand reversal.

OPEC+ has officially been trying to restore output at the rate of 400,000 barrels a day each month. However, in reality, the alliance is far away from getting to that target. While US oil output has been increasing it’s still not enough to cool the price rally.

Global crude stockpiles have retreated to pre-pandemic levels in early January, according to oil analytics firm Kayrros, with drawdowns led by sharp declines in China and the US, where inventories are at the lowest since late-2018.

What does it mean for India?

The global oil development will be watched by the finance ministry and RBI as the former is in its last stages of giving final touches to the 2022-23 Union Budget.

In case the Budget fails to rein in taxes on petrol-diesel with crude oil does crossing the $100 barrier, fuel prices may remain significantly higher than what they were when crude was above $100 a decade ago. It is because taxes on petrol-diesel are much higher today. This will generate additional tailwinds for inflation.