Brent Likely to Hit $100 Per Barrel by Year End

Brent is likely to hit $100 per barrel by the end of the year following OPEC+’s move to cut two million barrels per day from November, a new market note from Rystad Energy has outlined.

“We believe that the price impact of the announced measures will be significant,” Rystad Energy Senior Vice President Jorge Leon said in the note.

“By December this year Brent would reach over $100 per barrel, up from our earlier call for $89 per barrel,” Leon added.

In the note, Leon outlined that ICE Brent Front Month reached $94 per barrel right after the OPEC+ announcement, compared to $88 per barrel last Friday.

Oil soared past $100 per barrel for the first time in years as Russian forces escalated a conflict with Ukraine back in February. It has since closed above $120 per barrel on several occasions in 2022, although Brent dropped from over $123 per barrel in June to just above $84 per barrel at the end of September. At the time of writing, Brent is trading at $95.18 per barrel.

Fitch Solutions is currently forecasting that the Brent crude oil price will average $105 per barrel in 2022, while the Bloomberg Consensus sees Brent averaging $101.7 per barrel this year and the latest short term energy outlook from the U.S. Energy Information Administration sees the Brent spot price averaging $104.21 per barrel in 2022.

Scope for 1.2 Million Barrels Per Day

In Rystad’s latest market note, Leon highlighted that Rystad believes that OPEC+ will not be able to deliver on the full headline cut but instead has scope to deliver 1.2 million barrels per day of effective cuts “as 14 out of the 23 member countries, accounting for 39 percent of the group’s production in September, are currently underproducing so that the new quota will not be binding”.

“For example, Russian production is around 9.7 million barrels per day but their new quota is 10.5 million barrels per day,” Leon said.

The estimated 1.2 million barrel per day of effective output cut for November 2022 will be mainly shouldered by Saudi Arabia (-520,000 barrels per day), Iraq (-220,000 barrels per day), the UAE (-150,000 barrels per day) and Kuwait (-135,000 barrels per day), Leon forecasted. Kazakhstan, Algeria, Oman, Gabon, and South Sudan will also contribute, according to Leon.

Leon also pointed out that OPEC+ outlined two non-volume shifts in policy in its official press release, which he said “will also be quite impactful on the oil market”.

“Firstly, the Declaration of Cooperation was extended until the end of 2023. This adds a year of potential sturdy oil price floor amid what OPEC+ describes as ‘uncertain’ global economic outlook and the need for long-term guidance in the oil market,” Leon said.

“Another important detail is that the 23-member group will only meet every six months, signaling that the new target production level of 40.1 will not be tinkered with on a month-to-month basis,” he added.

To contact the author, email andreas.exarheas@rigzone.com