WILL the price of oil maintain its strength of last year, or will it go higher or lower? There are different scenarios and opinions. Various financial houses and news agencies forecast the oil price to range between $92 to $125, with an average of $102 per barrel. This level seems a bit high for oil price to reach and to maintain over the next 12 months.

The recent development in the energy market and with the warm weather, after the split of a hard winter in the USA and Europe when the temperatures went below the accepted level all of a sudden, caused a drop in gas prices by more than 50 percent to $3 per 1,000 BTU from $9 within one week. This means that factories in Europe can resume their work, despite the boycott on Russian gas and oil.

However, it means it will be a hard task to predict any price level for energy, knowing well that nothing did take place for the prices to come down. The same applies for the oil price from a high of $93 to below $80 today. Of course, the moving factors in energy prices are China and India. Nobody can predict China with its policy concerning COVID-19 and its current situation, which could lead to certain growth and higher consumption of oil, which could in turn lead to tightness in supply situation, especially with Russia being sidelined.

The main concern for higher oil prices to be within the range of $90 to $100 is demand and growth in the economies of the east and USA, in the absence of any real supply of oil from OPEC with Russia being on the boycott list. Here we are talking about Saudi Arabia and Abu Dhabi. With limited supply availability, the demand may go above 95 million barrels per day.

Possibility
The only remaining possibility is to push for Venezuelan and Iranian oils at the same time, with the Venezuelan being easier to handle for USA supply, especially with Chevron already holding talks with the approval of the USA government. Iran will continue to be more difficult, but nothing will be an obstacle should the oil price hit the level of $100 per barrel. Perhaps Russian oil supply will be opened again.

It is hard to forecast the oil price for the coming 12 months, but it seems OPEC+ will be happy with a range of $80 to $85. It could be lower than last year but should be sufficient enough to meet their annual budgets with some surpluses. There are certainly many factors and elements that can play a role in determining the future oil prices, not only from OPEC+ and other oil producers but also international oil companies that are making more than $1 billion. Just two of the USA majors - ExxonMobil and Chevron - made $1 billion profit last year.

Also, the governments of consumer countries are imposing higher taxes on oil companies, with some exceptional rules in sharing some of it. It is difficult to predict a $100 level for this year, but a closer range of $85 - $90 is possible and acceptable to all and for keeping the world economy growing in the USA, China, and India.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]