The price of benchmark Brent Crude broke through the $80 per barrel price towards the end of September as the oil markets tightened before receding slightly due to concerns about China’s lower output because of power shortages.
A strong demand outlook combined with relatively tight supply is providing the upward pressure on prices. Output from the Gulf of Mexico has been hit by Hurricanes Nicholas and Ida, with many oil and lubricant companies like Shell and Exxon Mobil needing to repair damage to processing hubs, platforms, and pipelines. At the same time, some OPEC+ countries are struggling to expand production to fully take advantage of their new increased quotas after having limited production in an effort to prop up prices.
Prior to the COVID-19 pandemic, persistently high global inventories of crude oil had plagued the oil markets, but according to a note from Barclays bank, the opposite is now the case:
“Oil markets are accelerating, as a persistent supply deficit is shrinking the inventory cover to the lowest level in decades.”
Demand is also facing challenges, however, says Barclays, as China seeks to lower its emissions:
“Recent power rationing to industries in China to drive down emissions could weigh on economic activity, potentially offsetting the tailwind from incremental diesel use in power generation.”
Nevertheless, the bank raised its outlook for Brent in 2022 to $77 per barrel. Morgan Stanley’s third-quarter base case also sees Brent trading at $77.5 per barrel.
The last time prices rose above $80 was back in October 2018.