A tightening oil market could prompt higher prices in the second half of the year, the head of the International Energy Agency, Fatih Birol, has said.
Speaking at the Columbia Global Energy Summit, Birol also noted, as quoted by Reuters, that while the mild winter of 2022 and 2023 helped Europe avoid the worst of the energy crunch, this winter could present a problem. Despite this challenge, he believes Europe should be able to do without Russian LNG.
The reason for recent bullish price outlooks is invariably OPEC+’s decision to reduce its collective output further, removing some 3.6 million barrels in daily output from global supply.
Not everyone agrees, however. The U.S. Energy Information Administration, for one thing, sees the oil market tipping into a surplus in the second half of the year as non-OPEC producers, that is, mostly the U.S. continue to increase production.
Others, such as commodity analysts from Morgan Stanley and Citi, believe that the OPEC+ move signals concern in the cartel about demand—per Morgan Stanley—and that the rebound in Chinese demand is far from a certainty, per Citi.
According to Morgan Stanley’s Martijn Rats, the output cut “reveals something, it gives a signal of where we are in the oil market. And look, let’s be honest about this, when demand is roaring…then OPEC doesn’t need to cut.”
Meanwhile, Citi’s Edward Morse said that “We’re waiting to see what’s really happening with the [Chinese] economy, but it is a slower recovery. If anything, that will be an end-of-year phenomenon.”
Crude oil has been trending higher since the OPEC+ announcement and this week it got an additional push from the latest U.S. inflation data, which came in more positive than expected, suggesting stronger oil demand prospects ahead.
At the time of writing, Brent crude was trading at around $87 per barrel, with West Texas Intermediate at $83.
According to Pioneer Natural Resources’ Scott Sheffield, crude could rise to $90 later this year and later to $100 per barrel.