Oil prices are yet to peak: UAE energy minister

Oil prices are nowhere near their peak as an impending rise in Chinese demand threatens to strain a global market already pinched by tight supplies…reports Asian Lite News

UAE energy minister Suhail Al Mazrouei on Wednesday said that oil prices are nowhere near their peak as an impending rise in Chinese demand threatens to strain a global market already pinched by tight supplies, media reported.

The comments came from the minister days after the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, agreed to significant oil output increases in July amid calls for the alliance to help contain the surging oil prices.

Efforts by OPEC+ oil producers to boost output are “not encouraging”, the UAE minister told an energy conference in Jordan, noting the group was currently 2.6 million barrels per day short of its target, the Khaleej Times reported.

“The risk is when China is back,” Al Mazrouei said in an apparent reference to Chinese demand. Prospects for demand growth in China, which is relaxing lockdowns, have been buoying crude prices recently.

Al Mazrouei warned that without more investment across the globe, OPEC+ can’t guarantee sufficient oil supplies as demand fully recovers from the coronavirus pandemic.

Prices can reach “unseen” levels if Russian oil and gas is completely taken off the market, he said.

Meanwhile, Goldman Sachs, the multinational investment and financial services firm, said in a report that fundamentals for crude oil weakened in April-May with modest declines in the Russian exports, record large sales by Strategic Petroleum Reserve and severe Chinese lockdowns bringing the oil market to its first surplus since June 2020.

The surplus, which the report termed as “politically created surplus”, is already ending, driven by the ongoing recovery in the Chinese demand.

“Chinese demand is recovering, yet we remain conservative on its further normalisation. The government’s push for achieving robust growth this year, therefore leaves risk to our downgraded Chinese demand expectation as skewed to the upside,” the report said.

Going forward, it downgrades China’s demand expectations by 0.2-0.4 million barrels per day in the second half of 2022-23.

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“Given our already cautious demand expectations for China at the beginning of this year, this reflects the view that rolling lockdowns will remain a headwind to mobility (in the country) this year.”

Meanwhile, Russian crude oil production is expected to fall by a 0.5 million barrel per day following the European ban, the report said.

“Oil’s structural deficit therefore remains unresolved, with in fact an even tighter oil market through April than we had expected. Supply remains inelastic to higher prices with core-OPEC (higher) and exempt countries (lower) production shifts broadly offsetting.”

On the demand side, the report said that the negative global growth impulse remains insufficient to rebalance inventories at the current prices.

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