(MENAFN- Khaleej Times) Opec+ may sticks to output deal when it meets on May 5; China lockdowns weigh on oil demand outlook brent and US West Texas Intermediate (WTI), two international benchmarks, sustained an upward trend last month and rose 1.5 per cent and 6.4 per cent, respectively, reflecting their fifth straight monthly increases. — File photo by Muzaffar Rizvi
Published: Sun 1 May 2022, 4:26 PM
Last updated: Sun 1 May 2022, 4:27 PM
Opec+ may sticks to output deal when it meets on May 5; China lockdowns weigh on oil demand outlook
Oil prices are likely to hover around $100 a barrel in near future due to fear of Russian supply disruption, lower demand in China and reluctance of major oil producers to increase production capacity, experts say.
Brent and US West Texas Intermediate (WTI), two international benchmarks, sustained an upward trend last month and rose 1.5 per cent and 6.4 per cent, respectively, reflecting their fifth straight monthly increases. Brent crude futures, which rose $1.99, or 1.9 per cent, to $109.58 a barrel during the intra-day trading in London ended at $109.34 a barrel on Friday while WTI rose $1.40, or 1.3 per cent, to $106.76 in late trading ended at $104.69 per barrel.
Analysts and market experts said crude prices have been buoyed by the supply disruption fears as well as increased likelihood that Germany will join other European Union member states in an embargo on Russian oil.
“There are rising concerns about the conflict disrupting more supply. The market is getting prepared for the possibility that we're going to see more supply cut off going into the weekend,” said Phil Flynn, an analyst at Price Futures Group.
Opec+ may stick to existing deal
The Organisation of the Petroleum Exporting Countries (Opec) and allies led by Russia are expected to stick to its existing deal and agree another small output increase for June when it meets on May 5, according to Reuters.
Under a deal reached in July last year, the group is set to increase output targets by 432,000bpd every month until the end of September, to unwind its remaining production cuts. Last month, it agreed to go ahead with the planned output increase for May.
Major consumers, led by the United States, have been pressing the group to boost output at a faster pace, however, especially as Western sanctions hit Russian output.
The group, however, has been struggling to produce at its agreed targets, a trend that is likely to continue. It produced 1.45 million barrels per day below its production targets in March, data showed.
Problem is more political
Opec recently said the sanctions on Russia could affect supply of around seven million barrels of crude in the global oil market. The Opec secretary-general Mohammad Sanusi Barkindo said that this would be far beyond the group's capacity to replace while pointing out that the problem is more political than fundamental relating to supply and demand issues.
On the production side, Opec secondary sources showed Opec production showing marginal month-on-month growth during March-2022 to reach an average of 26.8 million barrels per day after growth in production in Saudi Arabia was partially offset by a decline reported by Libya and Nigeria.
“In its latest report, Opec also lowered demand forecast for 2022 as it expects oil demand growth of 3.7 million barrels per day, 0.4 million barrels per day lower than its previous growth forecast, to average at 100.5 million barrels per day. Quarterly data showed strong demand during the first quarter of 2022 led by economic recovery backed by stimulus programs and easing of Covid-19 related restrictions,” Junaid Ansari, head of Investment Strategy and Research, Kamco Invest, said.
China factor
Analyst said oil market will closely watch the world's second biggest economy as it is showing no signs of easing lockdown measures which have hit its economy and global supply chains. China is also the world's biggest crude importer and longer lockdowns will impact the oil demand and price trend in coming weeks.
Crude's rally could stall and prices average at just below $100 a barrel this year, a Reuters poll found on Friday, as economic risks and China's Covid lockdowns counter supply shortfalls due to the Ukraine war.
“With both full and partial lockdowns ramping up since March, China's economic indicators have plunged further into the red. We now expect China's GDP to slow further in second quarter,” Wood Mackenzie's head of APAC economics, Yanting Zhou, said in a note.
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