Brace for higher oil prices in the second half of the year. Those sentiments were echoed by analysts at Goldman Sachs, who believe prices will continue increasing as demand continues to outpace supply. The remarks come on oil prices dropping to lows of $63 a barrel last month only to bounce back and find support above $70 a barrel.
Declining Oil Production
Goldman Sachs analysts expect oil prices to rise from just above $80 a barrel and close the year at highs of $86 a barrel. The uptick in oil prices, according to the analysts, will mostly be fueled by sizable deficits in the second half of the year. The analysts project deficits of up to 2 million barrels a day likely to push prices up in the third quarter.
The remarks about higher oil prices come on the backdrop of oil production increasing significantly over the past year to 12.7 million barrels a day in the US. The increased production comes with the opening of economies worldwide with the easing of COVID-19 restrictions.
However, analysts are convinced that the pace of production will slow starting in the third quarter. Oil production is expected to decline to about 200 barrels a day, owing to a significant decline in rig counts.
Immediate data indicates that the oil rig count responsible for a good chunk of US oil production has dropped to the lowest level in 16 months, down from the 2022 peak. Last month the rig count fell by 7 to 530 hitting the lowest level since March 2022.
Surging Oil Demand
Complicating the oil situation in the US is the failure of G20 energy ministers to reach an agreement that further throws oil demand into uncertainty. The ministers failed to agree on the modality of phasing down fossil fuels, all but complicating the push to clean energy. Lack of investments and commitment towards clean energy should continue to fuel demand for fossil fuels, with oil the biggest beneficiary.
The US has been pushing to instill curbs on fossil fuels. The government has already committed to providing up to $700 million to help monitor and reduce methane emissions from the oil and gas sectors. The funding is to be accompanied by technical assistance from companies to curb emissions of the planet’s warming greenhouse. Nevertheless, its efforts might not be enough if other countries don’t do their part in curbing fossil fuels productions and emissions.
The International Energy Agency already expects global demand to rise by 2.4 million barrels per day in 2023, which should outpace last year’s 2.3 million-a-day increase. Demand from China and India is expected to continue fueling the oil market, with the two countries expected to make up for 2 million barrels starting in the second half of 2023. Speculation over a new stimulus in China expected to accelerate economic activity should also have a significant impact on driving prices higher
A surge in oil prices will also be fueled by tightening supply from some of the biggest producers. Saudi Arabia is one of the major producers turning to production curbs to trigger price uptick. The cuts come when summer demand is more vital than ever.