The ingredients for the continuing rise in oil prices are fully collected

The ingredients for the continuing rise in oil prices are fully collected

(BFM Bourse) – The price of Brent oil futures reached the level of $ 120 per barrel on Monday morning, as the European Union is still trying to force Hungary to join the proposed gradual oil embargo. Russian supplies and while the Chinese authorities are loosening the containment grip a bit.

No direction other than up. For most oil market operators, all the conditions are in place for oil prices to continue to rise this summer, having doubled since the end of 2021. On the supply side, there is a lack of alternative sources, while geopolitical threats usually increase. supply routes. On the demand side, the approaching summer peak and the possible lifting of restrictions on activity in China support the global appetite for black gold.

The Brent North Sea oil benchmark reached $ 120 for the first time since March 24. The first factor, seasonal, increased demand, occurs with the advent of the “management period”. More specifically, this applies to the season of motorized escapes in the United States since the first long summer weekend, Memorial Day (reaching Monday, May 30, 2022), when Americans travel to relatives or leave outdoors. . The driving season ends with Labor Day (ie an extended weekend of 5 September in 2022). With the United States still accounting for about 10% of global gasoline consumption, the extent of travel in the country is considerable, but this phenomenon is actually spreading to virtually the entire Northern Hemisphere. An exceptional factor could add to this this year, and the Chinese authorities appear to be preparing to unleash the vices of prisons in Shanghai and Beijing. However, if economic activity in China accelerates, demand for oil will automatically follow.

These elements come at a time when the escalation of Western sanctions against Russia threatens to exclude one of the world’s three largest players (with Saudi Arabia and the United States) from much of the world market if EU members succeed in agreeing an embargo. Due to Hungary’s opposition, the 27 did not agree on this point on Sunday, but negotiations must continue during the extraordinary European Council summit on Monday and Tuesday. Negotiators could propose a two-tier ban that would keep pipeline supplies (which supply Germany and various eastern countries, including Hungary) open for a while, while banning tankers.

On the supply side, OPEC energy ministers and their allies, who are not formally members of the organization (collectively called OPEC +), will hold their monthly meeting on Thursday via videoconference, as has been the case for two years. However, analysts see little chance that the cartel would announce any move that would breathe new life into the market, given OPEC + ‘s apparent difficulties in increasing production after years of underinvestment. OPEC members and their allies are likely to be satisfied with reaffirming the trajectory of a slight re-increase in their output, according to sources provided by Reuters.

It should be recalled that after declining production by around 10 million barrels per day in spring 2020, the expanded cartel aims to gradually restore its previous production by an additional 400,000 barrels each month, which means that production will not be fully completed. recovered after almost two years. In fact, several producer countries (Iraq, Venezuela, Libya, etc.) are in fact struggling to resume production at the planned pace.

Guillaume Bayre – © 2022 BFM Bourse

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