Fears grow for the possible end of the cheap oil era
It seemed that consumers had begun to breathe when, after more than two years of almost constant growth in the price of crude oil and a record-breaking March, in June 2022 the value of a barrel began to fall to around 76 dollars a barrel. An amount that, compared to previous peaks, seemed "cheap". But the decision by the Organisation of the Petroleum Exporting Countries (OPEC) and its partners (OPEC+) - among which Russia stands out - to respond to this situation with a cut in oil production of two million barrels a day that will last until the end of 2023 and is intended to readjust supply levels and boost prices, put an end to consumer hopes.
In this regard, the hydrocarbon energy specialist and editor of Oilprice.com, Irina Slav, has published an economic and energy analysis in which she questions whether, from now on, there will be another period of cheap oil. The starting point of Slav's thesis is OPEC's latest report, which, for the fourth year in a row, shows the inability of its member countries to produce the agreed amount of barrels of oil.
"OPEC has not produced more than 30 million barrels per day consistently from 2015-2018," the analyst's first sentence argues. And not by a few thousand barrels per day, but by a shortfall of 1.8 million per day. "At first glance, this deficit might seem modest in the context of a 90-100 million barrels per day market. But it just goes to show why oil is priced by the marginal barrel. A roughly 2% deficit in daily supply, compounded over 18 months, has wiped out record oil surplus figures in record time," wrote investor and analyst Ross Hendricks on Investing.com, "One can imagine the catastrophic impact of this 5% deficit from the disruption of Russian exports".
In addition, Slav also highlights the US need to increase the volume of its strategic oil reserves - since it has had to use them, at the most critical moments of the inflationary period that has marked the last few months - although "it seems that production growth has lost its [important] place among the priorities of US drilling companies", he added. The energy analyst claims that, given the expectations of growth in demand due to the end of China's 'Zero Covid' policy and the certainty that oil is still an indispensable commodity, investment banks are waiting for a new increase in crude oil prices.
However, the reference to Matt Salle, president and portfolio manager of TortoiseEcoFin, "global oil inventory is at its lowest levels since 2004", serves Irina Slav to explain that OPEC's physical and economic production constraints, sanctions against other producing countries such as Russia, and the reduction of more easily exploitable acreage, could be clear indicators that the era of cheap oil is coming to an absolute end.