Oil prices will continue to climb but won’t reach $100: analyst

Oil prices are rising and will likely hit around $80 per barrel, but suggestions they could reach $100 are "farfetched,” an energy analyst told Rudaw on Wednesday.

"We think that oil prices could reach around $80 per barrel,” Homayoun Falakshahi, senior commodity analyst at Kpler, told Rudaw’s Omar Moradi. "We are hearing words right now that oil could reach back to 100 dollars per barrel. We think this is farfetched, mainly because a lot of the supply remains artificially out of the market right now, mostly due to OPEC cuts.”

The Organization of the Petroleum Exporting Countries (OPEC) cut production in April last year after prices crashed during the coronavirus pandemic. Global demand is slowly increasing and with it prices. 

There are a few key factors pushing prices up, according to Falakshahi.

"The first one is how quick vaccination would progress in emerging countries, allowing demand to come back very strongly in these places as well,” he said.

"Other factors to watch are on the supply side. This is mostly due to the fact that a lot of the supply that is being taken out of the market is being artificially taken out. So while we see a low supply growth from non-OPEC countries in 2021… there is a lot of spare capacity in OPEC countries, including Iran,” Falakshahi said. 

Including Iran, whose oil sector is under US sanctions, he estimates there are around seven million barrels per day (bpd) of spare capacity.

In its June report, the International Energy Agency (IEA) said global oil demand is set to return to pre-pandemic levels by the end of 2022. Oil prices on Wednesday hit a more than two year high, approaching $75 per barrel.

OPEC and its allies (OPEC+) have confirmed they will continue to increase output as per an April decision, which ruled that production would grow by almost two million bpd between May and July.

As nations ease coronavirus restrictions and the economy picks up, demand for oil is increasing. 

"Over the past two months and a half, it is showing that demand is really outpacing supply,” Falakshahi said.

The IEA expects that meeting growing demand will not be a problem. "Even after boosting oil production by around 2 [million bpd] over the May-July period, OPEC+ will have 6.9 [million bpd] of effective spare capacity,” it said.

According to Falakshahi, when oil prices will reach 80 dollars depends on OPEC and ongoing US-Iran negotiations to revive the nuclear deal and lift sanctions.

"The OPEC decisions taken at the end of each month will be key, as well as what happens in the Iran and US nuclear negotiations and whether they can reach a deal, because that would bring about 1.7 [million bpd] of Iranian oil back in the market in about six to nine months,” he said.

Iran’s 2015 nuclear deal with world powers allowed it to sell crude oil on the international market, but former US President Donald Trump withdrew from the accord in 2018, forcing Iran to sell its clandestinely, likely at a major price markdown. The sixth round of talks in Vienna is ongoing to revive the deal and appear to be making progress.

Tehran’s oil minister said late last month that they "can easily achieve a daily production of 6.5 million barrels,” a rate that Iran has not reached since before the 1979 Islamic revolution.