London (AFP) – The price of crude oil reached its highest level in three years on Monday, due to supply disruptions in Libya, Nigeria and other countries and increased demand, despite the spread of the mutant Omicron.
The price of Brent North Sea crude reached $86.71 a barrel, its highest level since October 2018, and only cents less than a level not recorded since 2014. Oil prices are 56.95 percent higher than their level a year ago.
Several factors contributed to the rise in prices, including disruptions in production “in Libya, Nigeria, Angola, Ecuador and finally in Canada due to the severe cold,” according to Hussein Sayed, an analyst at the Exinity Investments Group.
The balance between supply and demand
For his part, Walid Qadmani, an analyst at XTP Financial, said that the markets “still focus on the fragile balance between supply and demand, which appears to have a significant impact on price fluctuations during the post-pandemic economic recovery period.”
For example, since mid-2020 Nigeria has been producing half a million barrels less than it used to, or 1.4 million barrels per day, according to figures from the Swedish financial group Seib. The supply in Angola has also decreased since 2016 and currently stands at 1.2 million barrels per day.
Added to this are geopolitical risks. Some analysts say that if the conflict between Russia and Ukraine escalates, leading to further disruptions in Russian gas supplies to Europe, energy prices, and thus crude oil prices, may rise.
Also, natural gas prices, which are still very high, contribute to the rise in oil prices. As a result, “the demand for diesel and fuel oil has increased to replace natural gas where possible,” says Bjarne Schieldrop, an analyst at Seib.
As demand increases, tension is rising between producers.
Limited effect of “Omicron”
As for the omicron mutant, which was initially thought to pose a threat to crude oil purchases, it proved that its effect was less severe on demand than the previous mutant, and did not affect fuel consumers.
“The members of the Organization of Petroleum Exporting Countries (OPEC) and their allies are the only ones who are able to reduce prices at this stage by pumping more crude,” Sayed said.
The Organization of the Petroleum Exporting Countries and its allies, month after month, announce increases in oil extraction targets while they struggle to achieve them, which leads to the inability to meet the needs.
After the OPEC meeting at the beginning of the year, Saudi Arabia confirmed that respecting the agreement and production ceilings is essential. In other words, members with spare capacity cannot step in to compensate for the underproduction of members who are unable to meet the production threshold.
US shale oil
Joel Hancock of the French financial group Natixis expected that “the production differentials of OPEC Plus members are widening, with Russia being the engine of the next big deficit.” According to him, given that the increase in oil supply outside OPEC Plus and outside the United States is “relatively weak”, “resorting to American shale oil will be necessary to meet the expected growth in consumption.”
Many analysts now expect crude oil prices to rise above $90 a barrel or even cross the $100 threshold. For Hussein Sayed, “what seemed impossible months ago, now has a great opportunity to be achieved.”
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