The Brent crude oil futures market is abuzz with chatter about prices potentially hitting the psychological $100 per barrel mark. While the front-month contract recently peaked at $91.59 before dipping slightly, it remains at levels not seen since late October. At present, the global benchmark is trading at $89.67 per barrel, down $0.69 or 0.74% from the previous session, with an intraday range of $89 to $91. Some analysts believe that $100 oil may be inevitable due to market tightness caused by OPEC+ production cuts led by Saudi Arabia and Russia.
In March, OPEC+ agreed to extend its voluntary oil production cuts of 2.2 million barrels per day until the end of June in order to stabilize the market. This decision was reaffirmed at the group’s latest ministerial meeting on April 3. Additionally, countries like Iraq and Kazakhstan have pledged to improve their adherence to production targets, while Russia has announced that its cuts in the second quarter of 2024 will be based on production rather than export volumes. However, data from S&P Commodity Insights indicates that OPEC+ members exceeded agreed production levels by 275,000 bpd in January and 175,000 bpd in February.
Aside from OPEC+ actions, other factors contributing to the rise in oil prices include extremely bullish U.S. crude oil inventories, particularly the American Petroleum Institute’s report of a drawdown of 6.4 million barrels at the end of March. Various geopolitical tensions, such as unrest in the Middle East and attacks on Russian energy infrastructure in Ukraine, are also fueling the upward trend in prices. While OPEC+ generally avoids acknowledging that its decisions are meant to influence crude oil prices, it is aware of the impact it can have on the market, especially with rising non-OPEC production.
Although OPEC+ aims for a sufficiently high oil price of at least $80 or above, pushing prices too high, such as reaching $110 to $125, could be counterproductive in 2024. A price spike to this level would likely prevent global central banks from reducing interest rates, leading to potential demand destruction. As a result, the producers’ group might prefer a price range between $80-90 to maintain market stability. Should oil prices approach $100 due to strong demand in a tight market, OPEC+ may consider reversing its production cuts to increase supply and keep prices in check.
In conclusion, the Brent crude oil futures market is closely watching the potential for prices to reach $100 per barrel, driven by various factors including OPEC+ production cuts, U.S. inventory reports, and geopolitical tensions. While the group aims for a balanced price range, the possibility of demand destruction at excessively high prices remains a concern. As the market dynamics evolve, OPEC+ may adjust its production strategies to ensure stability and avoid detrimental impacts on global oil demand.
