Oil Settles Higher As Major Producers Flag Capacity Limits
The latest news in the global energy sector is that Saudi Arabia and the United Arab Emirates are nearing capacity. President Biden was told by the French president that the UAE was already at maximum capacity, but it could increase its output by 150K barrels per day. Last month, OPEC+ compliance rates were 256% – more than half a billion barrels short of the agreed target. That’s a big concern for oil producers and markets, but the news is accompanied by a rally in oil prices.
Currently, oil is trading above $100 per barrel, according to Bloomberg. However, the price of oil is likely to remain higher than this. The EIA’s most recent report predicts that U.S. crude oil production will average 11.9 million barrels per day this year, rising by 5% in 2023. The EIA also expects the price of Brent crude oil to remain above $100 per barrel after 2023.
China is stepping up its efforts to protect its strategic petroleum reserves. The two nations are already holding bilateral talks, though these are at a government level, and no oil companies are involved. However, it is unclear how long this will last, since China and Russia are in conflict. Taiwanese President Tsai Ing-wen spoke to former Japanese Prime Minister Shinzo Abe during their recent call. In response to a question about whether General Secretary Xi will meet with Zelensky, the Chinese spokeswoman did not immediately answer.
China halts new seaborne purchases of Russian crude, but a few hours later they resume. The move pauses cargo financing and payment risks. Meanwhile, European banks restrict some commodity-trade financing. The ban also applies to cargo that originates in Russia. So, while the sanctions on Russia may be a long way off, a ban on Russian oil is the best way to protect global energy markets from rising prices.