Expectations of More Barrels Continue to Hurt Oil Prices

By Adedapo Adesanya

Oil prices continued to drop as expectations of more supply coming to the market amid expectations that demand is returning as more countries recover from the pandemic continue to confuse the market.

Brent crude dropped 1.7 per cent or $1.29 to trade at $73.47 per barrel while the West Texas Intermediate (WTI) lost $1.4 or 2.2 per cent to settle at $71.65 per barrel.

Discussions among members of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) over a supply policy ended without agreement this month after the United Arab Emirates (UAE) objected to extending the output policy beyond April 2022.

However, there were reports that Saudi Arabia and the UAE had reached an accord that should pave the way for a deal to supply more crude to a tight oil market but the UAE energy ministry said deliberations were continuing.

This indicated that a deal had not been solidified, throwing the market into more puzzlement.

Due to this, even a large drop in crude inventories could not help the market as finalising an agreement that would bring more supply seems like the only thing that could improve prices.

OPEC now sees a gradual recovery in surpassing the 100 million barrels per day mark in the second half of 2022 in its Monthly Oil Market Report released on Thursday.

The group sees global oil demand growing by 6 million barrels per day this year, unchanged from last month’s assessment. Total oil demand is projected to average 96.6 million barrels per day in 2021.

Next year, global oil demand will rise by a further 3.3 million barrels per day over 2021 to average 99.86 million barrels per day, roughly returning to the average demand of 2019, before the pandemic.

Oil demand in developed economies is set to rise by 1.5 million barrels per day in 2022 over 2021 while China and India will lead oil demand in developing economies which has been projected to increase by 1.8 million barrels per day in 2022 and exceed pre-pandemic levels.

This growth will be supported by the recovery in transportation fuels and firm industrial fuel demand, including petrochemical feedstocks. In terms of fuels, gasoline and diesel are expected to lead oil demand growth in 2022, OPEC said.