Market chatter of Brent crude oil futures potentially hitting the $100 mark per barrel has resurfaced, as the front-month contract reached $91.59 on Friday before decreasing slightly. As of Tuesday, Brent was trading at $89.67 per barrel. The next resistance level to watch is around $95, with some experts predicting $100 oil is on the horizon due to market tightness driven by OPEC+ led by Saudi Arabia and Russia.
In March, OPEC+ decided to extend its oil production cuts of 2.2 million barrels per day until the end of June to support the market. This decision was reaffirmed at their most recent ministerial meeting on April 3. Some countries within the group, such as Iraq and Kazakhstan, have pledged to improve their adherence to production targets, while Russia announced cuts based on production rather than export volumes.
S&P Commodity Insights data showed that OPEC+ exceeded production levels by 275,000 bpd in January and 175,000 bpd in February. Amidst compliance issues within the group, the question remains on how high oil prices need to go, especially in anticipation of a tight market in the latter part of 2024. Individual member interests may vary, creating potential disparity in the collective response.
Aside from OPEC+ actions, U.S. crude oil inventories have been notably bullish for the market, with a significant drawdown reported by the American Petroleum Institute. Tension in the Middle East and Ukrainian attacks on Russian energy infrastructure have also contributed to the rise in oil prices. The market is closely watching these catalysts as well.
While OPEC+ rarely publicizes its intentions to influence crude oil prices, the group holds some control over market direction due to prevailing conditions. While targeting a price range of $80 or more may be ideal, excessively high prices in the range of $110 to $125 could have negative consequences. This could lead to demand destruction and hinder global central banks’ ability to cut interest rates, maintaining them at elevated levels.
In light of these considerations, OPEC+ may aim for a price range between $80-90 to balance market stability and demand. If oil prices approach $100 due to increased demand in a tight market, the producers’ group could adjust its production cuts to increase output and keep prices near or slightly below the $100 level. The evolving dynamics of supply, demand, and geopolitical factors will continue to shape the trajectory of oil prices in the coming months.
