Oil prices are nearing $100 per barrel due to supply cuts and improved Chinese demand, sparking concerns about potential future demand destruction. Some analysts predict that prices could reach $100 per barrel in the fourth quarter of this year, but warn that global economic fragility and seasonal demand drops could make this unsustainable in the long term. The price support stems from voluntary cuts by some OPEC+ members, as well as additional production and export cuts pledged by Saudi Arabia and Russia. Despite the high prices, some buyers believe they can withstand them without reducing output runs due to firm refining margins. However, uncertainty persists over China fuel export quotas and Russia’s indefinite ban on fuel exports, which could exacerbate global diesel shortages.
Market participants in Europe doubt the long-term sustainability of triple-digit oil prices, with some suggesting that persistently high prices could lead to demand destruction. The steep backwardation in oil prices, where current prices exceed future prices, also discourages stocking refined products, leaving the market vulnerable to disruptions. The G7’s program limiting the use of Western shipping and insurance for imported Russian crude above $60 per barrel has benefitted Moscow, as it has deployed its own “dark fleet” and sold its flagship Urals crude at substantial discounts to benchmark prices. The upcoming OPEC+ technical committee meeting is unlikely to result in policy tweaks, and the White House, which has previously urged OPEC+ to increase output, has remained silent about the production declines.
As oil prices continue to rise, reaching potentially $100 per barrel, concerns are mounting about the long-term sustainability of these high prices and the potential for demand destruction. Supply cuts from OPEC+ members and improved Chinese demand have driven prices up, but analysts warn that economic fragility and seasonal drops in demand could undermine these gains. The market is supported by voluntary cuts and additional production and export reductions by Saudi Arabia and Russia. However, there are concerns about the impact of China’s fuel export quotas and Russia’s ban on fuel exports, which could worsen global diesel shortages. While some buyers believe they can withstand high prices due to strong refining margins, market participants are wary of triple-digit oil prices, pointing to the possibility of demand destruction. The White House has not taken any action in response to the production declines, and the upcoming OPEC+ meeting is not expected to result in policy changes. Overall, the oil market is facing uncertainty and potential challenges in the coming months.
