Oil price remains elevated as demand reaches pre-COVID levels

Muscat: Crude oil traded comfortably above the $80 per barrel mark during November-2021, according to a new report.

“After showing strong gains in October-2021, oil price volatility increased at the start of November-2021 with prices hovering above the $80 per barrel mark,” the Kuwait-based investment, strategy and research Kamco Invest said in its oil market monthly report.

Expectations of a strong economic recovery across the globe provided underlying support to crude oil prices. These expectations were backed by the passage of the $1 trillion infrastructure bill in the US coupled with higher exports from China, Kamco said in its report.

The month started on a weak note with reports of higher crude oil inventory in the US that increased in six out of seven weeks, in line with trends in US crude oil production. US oil inventory has increased by 21.1 million barrels over the last seven weeks, according to US Department of Energy data, to reach 435.1 million barrels. US oil rig count also showed a similar trend.

Weekly oil rig count data from Baker Hughes showed oil rigs increasing consistently over the last several months to reach a 19-month high level of 450 as of the week ended 5-November-2021.

Data also showed US crude oil exports reaching the highest since July-2021 as a result of higher distillate outflows that was at a 4-month high level, according to Bloomberg. With constrained production and higher exports, gasoline prices in the US reached the highest level since 2014. This added to rising inflation in the US that has reached the highest level in almost three decades at around 6.2 per cent. The US administration was under intensifying pressure to ban exports of crude oil and even refined products from the US that may make domestic fuel prices cheaper but would, in turn, discourage shale drilling.

The US EIA, in its latest Short Term Energy Outlook, increased its Brent spot crude oil price forecast for 2021 slightly higher to $71.59 per barrel in 2021 from its previous forecast of $71.38 per barrel. Next year’s forecast was kept unchanged at $71.91 per barrel. Bloomberg median consensus estimates for Brent stood at $80.0 per barrel for the fourth quarter of 2021 declining gradually to $71.5 per barrel by the third quarter of 2022.

The Organisation of Petroleum Exporting Countries (Opec) crude monthly average recorded the biggest month-on-month increase since February-2021 at 11.1 per cent to average at a 7-year high of $82.11 per barrel in October-2021. Brent crude averaged at $83.54 per barrel, recording a slightly higher month-on-month growth of 12.1 per cent while Kuwait crude grade was up 10.7 per cent during the month to average at $82.55 per barrel.

Meanwhile, demand remained strong across markets and reached near pre-covid levels at 101 million barrels per day, according to the CEO of commodity trader Mercuria Energy. However, he added that prices may not hit $100 per barrel as the current oil market has the significant spare capacity with Opec+ and the possibility of the US adding another one million barrels per day would prevent oil prices from reaching such levels. These comments were in line with that of the CEO of Vitol who said that oil demand is expected to reach even higher levels next year and would exceed 2019 levels in the first quarter of 2022.