Text: Hu Houfa
International oil prices continue to remain high, which has recently become the focus of attention in the global economic community. During the Spring Festival, global crude oil prices rose significantly. On Feb. 4, Brent crude futures in London rose $2.16 to close at $93.27 a barrel, their highest in seven years. Experts who have long tracked the international crude oil market generally believe that international crude oil prices will maintain a strong upward momentum in 2022. This will have an impact on the recovery of the world economy that cannot be underestimated.
According to 43 economists and analysts surveyed by Reuters, the average price of Brent crude oil will reach $79.16 per barrel this year. This result is generally higher than previously predicted. The price of crude oil in the United States this year will reach $76.23. But industry experts believe that this price forecast is too conservative. According to the British Economist Intelligence Unit, given the tight supply of the market, oil prices will certainly rise to more than $100 per barrel this year. Goldman Sachs and Morgan Stanley's estimates of international oil prices for 2022 are also more than $100 per barrel.
At present, the OECD countries' crude oil inventories are at a low point for many years, so it is hoped that oil producing countries can increase production as soon as possible to meet the market's crude oil demand. However, the production capacity of oil-producing countries is overestimated. In practice, members of the Organization of the Petroleum Exporting Countries (OPEC) cannot produce crude oil according to quotas. According to OPEC officials, there are not many countries with spare capacity at present, and only a few countries such as Saudi Arabia still have the ability to increase production. Most member countries have reached their limits in terms of production capacity, and some have struggled to meet the required production targets, such as Iraq's crude oil production last month, which was far below the production quota obtained. If oil-producing countries expand their production capacity, on the one hand, it is unlikely to have an immediate production increase effect, and on the other hand, it will need to increase a lot of investment, which in turn will induce further increases in oil prices.
The capacity of most OPEC member countries has reached its limits.
As far as the current supply side of crude oil is concerned, OPEC members remain the world's main suppliers of oil, with a market share of more than 40%. OPEC recently met to decide to continue to implement the plan of a small increase in production, and is not prepared to respond to the voice of consumer countries and significantly increase production. The rise in oil prices has attracted great attention from all countries, and the United States, India and major European countries have recently repeatedly asked oil producers to increase production to promote the rapid recovery of the global economy after emerging from the COVID-19 pandemic.
However, OPEC has stuck to its plan to increase production by 400,000 barrels per month. OPEC believes that the reason for the current surge in oil prices is that consumer countries have reduced their investment in fossil energy during the energy transition. Geopolitical factors such as the tension between the United States and Russia have also played a role in "fueling the fire" on the rise in oil prices. Coupled with the recent crisis in the Middle East, which is the main producer of crude oil, such as the attack by the Houthi armed forces in Yemen on the capital of the United Arab Emirates, the third largest oil producer in OPEC, the international oil market has "made it worse".
Contrary to expectations, the COVID-19 pandemic around the world, while still spreading, has not affected the demand for crude oil in the international market. In the fourth quarter of last year, global crude oil demand grew by 1.1 million barrels per day. As the epidemic gradually eases, the stronger demand for crude oil will be the expected trend.
As the epidemic gradually eases, a stronger demand for crude oil will be the expected trend.
Although the rise in oil prices has brought an increase in income to oil-producing countries, it is not conducive to the recovery of the world economy, so the international community generally hopes that the oil market will remain basically stable in the future, especially in the United States and Europe, which is even more reluctant to see oil prices soar. To this end, the United States has frequently introduced measures to curb oil prices since last year, and the Biden administration has been trying to contact OPEC to discuss the issue of oil production and price increase. The United States has also released oil reserves twice to stabilize oil prices.
It has been noted that china, Japan, the United Kingdom, India, South Korea and other oil consuming countries have also joined the ranks of releasing oil reserves, which shows that maintaining the stability of the oil market and preventing oil prices from soaring is in the interests of most countries and is also conducive to promoting global economic recovery. Although the release of reserves is unlikely to play a decisive role in winning the "oil price defense war", it can play a positive signal to the international oil market, expressing the attitude and determination of oil consuming countries to curb oil prices.
Biden announced the release of oil reserves.
The reason why the United States took the lead in curbing the surge in oil prices is mainly due to the need to curb inflation. Although the United States has basically achieved oil self-sufficiency and has no import demand for crude oil, in order to save the economy, the United States has vigorously implemented monetary quantitative easing policies in recent years and printed money like crazy, resulting in high inflation in the United States, and curbing inflation has become a major economic problem plaguing the Biden administration. Global oil trading is mainly based on the US dollar, and if oil prices are allowed to soar, it is bound to exacerbate inflationary pressures in the United States.
However, from the current point of view, it seems unlikely that the United States and other oil consuming countries will win this "oil price defense war" in the short term, because the main factors leading to the current rise in international oil prices will not be eliminated soon. Especially if the Ukraine crisis continues to ferment, triggering a military confrontation between the United States and Russia, the West increasing sanctions against Russia, and Russia's oil output falling sharply, then the surge in oil prices will be unstoppable.