Premiums for physical oil barrels worldwide are on the rise, with supplies from regions like the Middle East, Azerbaijan, and even Russia commanding premiums as refiners strive to produce sufficient diesel in anticipation of increased seasonal demand.
Despite crude oil prices currently hovering in the mid-$90s, bullish analysts argue that many investment funds remain underinvested in oil, creating the potential for further price increases. Chevron CEO Mike Wirth expressed optimism, stating that he sees oil prices reaching $100 per barrel.
Brent crude gains over 30% since March
Benchmark Brent crude has climbed over 30% since its lowest point in March. Production cuts by major oil-producing nations such as Saudi Arabia and Russia have tightened supplies while consumption has reached record levels.
This has led to a depletion of stockpiles and prompted refiners to secure additional barrels to meet the growing demand for specific types of fuels.
Amrita Sen, head of research at Energy Aspects, commented on the strong fundamentals in the oil market, emphasizing that it could potentially reach $100 per barrel temporarily, although she does not suggest that it will average above that level.
The strength in oil prices is notably driven by physical markets. Azerbaijan’s Azeri Light crude, for instance, traded close to $100 a barrel, driven by robust profits from refining crude into diesel, which led processors to pay substantial premiums for high diesel-yielding grades.
Russian oil barrels also saw a resurgence in Asia, trading above their benchmark once again, after spending a considerable time at a discount due to geopolitical events.
This trend is reflected in the oil futures curve, with the nearest Brent futures contract trading at a premium of over $1 per barrel to the next month. Such backwardation in the curve indicates tight supply conditions, the most significant seen since November, excluding expiry days.
Even some of the market’s typically bearish analysts are starting to acknowledge the possibility of oil prices reaching $100 per barrel, particularly considering persistent political risks in producer nations like Libya and Nigeria.
Citigroup analysts, including Ed Morse, noted that geopolitics and technical trading could push oil over $100 for a brief period.
However, they anticipate a gradual easing of prices in the future, driven partly by increased supply from countries outside the OPEC+ alliance, including the United States, Guyana, and Brazil.
While revenue in oil-producing nations is currently surging, there is growing concern about the impact on consuming nations.
The Reserve Bank of India recently warned that crude oil prices above $90 a barrel pose a new risk to global financial stability.
Although Brent crude has not yet crossed the $100-per-barrel threshold this year, refined fuel prices, such as gasoline and diesel, have been trading above that level for an extended period.
Analysts suggest that Dated Brent may move above $100 per barrel, but a price level of $110 to $120 per barrel could significantly impact oil product demand and be considered excessive.