An oil rig in Taft, California, U.S. (Photo: David McNew)
Market chatter of Brent crude oil futures hitting the psychological $100 per barrel level is firmly back on. That's after the Brent front-month contract hit a high of $91.59 on Friday (April 5, 2024) before heading lower.
But it is still lurking around levels unseen since late October. At 11:16 am EDT on Tuesday, the global proxy benchmark was trading at $89.67 per barrel, down $0.69 or 0.74% on the previous session, within an intraday trading range of $89 and $91.
The next resistance level to be tested is around $95. However, even with Brent futures still considerably shy of the mark, some reckon $100 oil is all but imminent due to tightness in the market courtesy of oil producers' group OPEC+ led by Saudi Arabia and Russia.
For context, in March OPEC+ agreed to extend its "voluntary" oil production cuts of 2.2 million barrels per day (bpd) until the end of June to "support the market" - a decision it stood by at its latest ministerial meeting on April 3.
What's more, it also said that some countries in the group like Iraq and Kazakhstan had promised to improve their adherence to targets, while Russia announced that its cuts in Q2 2024 will be based on production and not export volumes.
That's after data published by S&P Commodity Insights - a secondary source used by OPEC+ to assess its members' compliance with their production quotas - indicated the group exceeded agreed production levels by a net 275,000 bpd in January and by 175,000 bpd in February.
Away from compliance within OPEC+, the big question on pricing is how high is high enough in what is expected to be a tight market for the second half of 2024? There is likely to be disparity in what individual members want, and what the collective response may be.
And OPEC+ action is a significant but not the only driver of oil prices. In recent weeks, U.S. crude oil inventories have been extremely bullish for the market, in particular the American Petroleum Institute's end-March reading of a crude and products draw down of 6.4 million barrels. That too at time of the year typically associated with a rise in inventories.
Additionally, tension in the Middle East and Ukrainian attacks on Russian energy infrastructure are serving as catalysts for higher prices too.
Officially, OPEC+ rarely admits its moves are designed to shore up crude oil prices. However, it knows that the prevailing market conditions give it a measure of control over the direction of the market both to the downside and upside, despite rising non-OPEC production.
But while it would like a sufficiently high price of at least $80 or more, a level that is very high - say $110 to $125 - might well be self-defeating in 2024. That's because should Brent hit such a high range, its inflationary impact would stop global central banks from cutting interest rates and maintain them at their current elevated levels for longer.
Demand destruction in its wake is something that OPEC+ will not want. A range between $80-90 might well be what it can work with. So, all things considered, should the oil price inch closer to $100 driven by demand in a tight market, the producers' group would likely want it to stay near or somewhat below the level and may reverse its cuts to pump more.
