At the beginning of the new year, the international crude oil price is hovering at the $80 per barrel mark, where will it go?

Experts disagree, disagreement outweighs consensus.

Several decisive factors will stir the sensitive nerves of the market at any time.

  First of all, the subsequent development of the new crown pneumonia epidemic will ultimately determine the changes in world oil demand.

  It is hard to imagine that many countries in the world will enter 2022 in a "flat" way.

From Europe to Oceania, from southern Africa to North America, in the face of a sharp rise in the number of virus infections, the so-called "herd immunity" has become a helpless option, and most countries cannot withstand prolonged blockades.

  It is hoped that the epidemic will eventually end and the world economy will recover. This time point may be this year or next year.

At that time, retaliatory economic growth will also greatly increase the demand for oil.

  Two years ago, when the novel coronavirus spread around the world, the blockade and isolation policies brought the world economy to a standstill, oil demand was hit hard, and oil prices fluctuated wildly.

With the widespread injection of vaccines in various countries, the world economy showed signs of recovery last year, oil demand also began to rebound, and oil prices rose month by month, the increase far exceeded expectations.

  Most consulting agencies expect that oil demand will temporarily decline in the first quarter of 2022 due to the impact of widespread infection of the Omicron strain, but it will rebound in the second quarter. The world economy may recover strongly in the second half of this year, and oil demand will also decline. Continued to increase.

According to the Organization of the Petroleum Exporting Countries (OPEC), the impact of Omicron will be "moderate and short-lived"; the IEA believes that the rebound in demand will temporarily slow due to new changes in the epidemic, but the overall trend will not be reversed .

Based on the same judgment, Goldman Sachs believes that the spring of world energy demand will soon arrive.

  According to the International Energy Agency, oil consumption is expected to rise to 99.53 million barrels per day this year from 96.2 million barrels per day in 2021, basically returning to pre-pandemic levels.

Some experts are more optimistic, predicting that world oil demand will hit record levels this year and maintain strong growth in the years ahead.

To this end, crude oil prices will also rise steadily.

Barclays forecasts that WTI will average around $77 in 2022, up from an average of $73 a barrel last year.

Goldman Sachs believes that if the epidemic is contained this year and next, oil prices will continue to rise, and the average price of Brent crude oil will reach $85 a barrel by 2023.

  Second, the tight supply of crude oil may continue for many years.

  At the end of last year, many people warned that the shortage of oil may lead to an imbalance between supply and demand due to the recovery of market demand.

Since the beginning of winter, the European power crisis has also sounded the alarm to the world.

The vast majority of forecasts point to further growth in oil demand over the next few years.

This raises an important question, can crude oil supplies keep up?

  Let's take a look at the three major oil producers one by one.

  One is OPEC.

According to the statistics of OPEC's monthly meeting just released, in November 2021, OPEC and non-OPEC oil-producing countries complied with the 117% production reduction requirements, which means that the actual production capacity is insufficient, even lower than the monthly production quota.

Not surprisingly, the OPEC meeting decided in February to continue raising production by 400,000 barrels per day until June.

  According to the U.S. Energy Information Administration, OPEC's spare capacity may be only 5.11 million barrels per day by the end of 2022, and this figure may fall further to below 4 million barrels per day by the end of 2023, which is down from 900 in the first quarter of 2021. 10,000 barrels per day decreased significantly.

In the first quarter of 2022, Bloomberg expects that OPEC and non-OPEC producers will increase actual crude oil supply by 1.4 million barrels per day, significantly lower than the original forecast of 1.7 million barrels per day.

  The second is the United States.

Well-known oil expert Daniel Yerkin believes that U.S. crude oil production may increase by nearly 1 million barrels this year, and shale oil production is recovering, but it is difficult to return to previous highs.

U.S. crude oil production is now about 2 million bpd below the record level of 13 million bpd in early 2020, while crude inventories have also fallen by nearly 70 million bpd over the same period.

The Biden administration's anti-fossil fuel stance and aggressive green agenda both constrain further oil and gas development for the foreseeable future.

Data show that the capital expenditure of 27 major oil producers in the United States fell to $111 billion last year, a decrease of nearly 60%.

Capital expenditures are expected to reach around $135 billion in 2023, less than half of 2014 levels.

  The third is Russia.

According to Rosneft data, Russia's total crude oil production in 2021 is about 10.9 million barrels per day, which is already very close to crude oil production capacity, and there is basically no room for increased production.

Russian Oil Minister Alexander Novak said that by May 2022, Russia's crude oil production will rise to 11.33 million barrels per day.

Even so, it is difficult to change the downhill trend.

  In addition, producers such as Canada, Norway, Guyana and Brazil may try to bridge the supply-demand gap, but have little effect.

  Again, investment preferences will affect the ups and downs of oil prices.

The global energy transition is a general trend, although difficult, such as rising costs, may be very prominent this year.

But there is no turning back, and the pursuit of green energy will not stop.

  Renewable energy is poised for record growth.

However, if the world commodity prices remain high, especially the high oil and natural gas prices, it will seriously affect the development, utilization and popularization of clean energy such as wind power generation and solar photovoltaic.

In its Market Report 2021, the International Energy Agency said rising input costs, wages, supply chains and logistical burdens could hinder the rollout and development of a range of low-carbon technologies.

The world still needs to double clean energy capacity by 2050 to achieve net zero emissions.

  At the same time, as investors continue to pursue ESG concepts, investment in traditional fossil fields will continue to decline.

Not only are oil companies under pressure to be environmentally friendly and low-carbon, but major investment banks are also working hard to reduce their carbon footprints.

Some large investment funds are eager to demonstrate green capabilities by eschewing new oil and gas projects.

  Still, Wall Street speculators have no regard for public sentiment.

There is an almost overwhelming expectation that oil prices will continue to rise.

Saudi Energy Minister Salman warned that underinvestment could lead to an "oil supply crisis" and continue to push prices higher.

Goldman Sachs believes the possibility of oil reaching $100 a barrel by 2023 should not be ruled out as supply cannot keep up with demand, with Brent still expected to average $85 a barrel in 2022 and 2023.

JPMorgan has boldly predicted that oil prices could soar to $125 a barrel this year and $150 a barrel in 2023.

  Finally, an issue that cannot be ignored is the outcome of the Iranian nuclear negotiations.

Whether Iran will get the freedom to export crude oil as it wishes is still unknown.

If the Iran nuclear deal collapses, the possibility of major geopolitical turmoil cannot be ruled out, which obviously deserves close attention from oil market participants.

If U.S. sanctions are partially lifted, the increase in Iranian crude oil inflows will have a significant impact on global oil prices against the backdrop of uncertain demand in the coming months.

  Iran is sitting on the world's fourth-largest crude oil reserves and has amazing potential.

The Iranian government had previously announced that it would increase production from the current 140,000 barrels per day to at least 320,000 barrels a day by mid-2023, thus achieving a target of 1 million barrels per day.

As of October 2021, the daily output of Iraqi crude oil is close to 2.4 million barrels, of which 1.7 million to 1.8 million barrels are used in domestic refineries.

  In the 1970s, Iran's crude oil production reached 5 million barrels per day.

If sanctions are lifted, Iran's oil exports from March 2022 will increase by 700,000 barrels per day.

Analysts believe that the resumption of Iranian oil exports will bring a shock, and its direct impact will be a 10% drop in oil prices.

  There are many uncertainties that have dominated the oil market this year.

We don't know when the epidemic will end, or if there will be new virus variants disrupting the economic and social order again and again.

So, we need to be prepared for the cost of living in the economy that the oil price may break 100, and we don't have to panic when the price of oil suddenly collapses.

Currently, crude oil price expectations range from an average of around $70 a barrel to hitting highs above $100 a barrel sometime this year and next.

The only thing that is clear is that the "black gold era" has come to an end, and the pace of green economy will accelerate in the new year.

Weng Donghui

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