Oil prices on the rise

The prices of Texas light sweet crude oil (WTI) and North Sea Brent crude oil have risen to record highs, in over seven years. The strong rally in oil prices is expected to continue in 2022, stemming from optimism about increased oil demand, while concerns about the Omicron variant, as well as geopolitical tensions are somewhat easing.

A truck carrying crude oil to a refinery in the US. (Photo: AFP/VNA)
A truck carrying crude oil to a refinery in the US. (Photo: AFP/VNA)

The price of WTI oil in Asia rose to 85.66 USD per barrel and the price of Brent oil was also close to 88 USD per barrel, the highest levels since October 2014. Prices of crude oil increased by more than 10% since early this year, as investors believe that oil demand will go up in the context that the world has returned to a new normal and reopened economies after the pandemic.

In addition, the attack by the Houthi rebels at an oil facility in the United Arab Emirates (UAE) on January 17, also partly affected the price of oil, due to fears, that the supply from this oil-rich area may be interrupted.

Oil prices climbed in the context that the Organisation of the Petroleum Exporting Countries Plus (OPEC +) is gradually loosening production cuts, but many smaller producers are still unable to increase supply. Meanwhile, other oil-producing countries are wary of pumping too much oil into the market, as many countries re-impose travel restrictions.

Analysts predict that, after soaring by 50% in 2021, the world oil price may continue to climb sharply in 2022, possibly reaching 90 USD per barrel, or even surpassing the 100 USD per barrel, due to limited production capacity and a decline in investment throughout the oil sector.

Although the Omicron variant has spread widely around the world, experts say that many governments are not yet ready to restore the strict pandemic prevention measures, that have strongly affected the global economy, which also attributes to the rise in oil prices.

A senior analyst at OANDA financial broker, said that if the Chinese economy, the world's largest energy consumer, does not decline sharply, with the Omicron variant not causing much negative impact, in addition to OPEC not increasing production sharply, the price of Brent oil can completely reach the threshold of 100 USD per barrel in the first quarter of 2022.

With the prospect of shrinking oil reserves, low spare capacity in the second half of 2022 and limited investments in the oil and gas sector, the oil market is at risk of falling into a situation of insufficient supply and Brent oil price will reach 90 USD per barrel, in the third quarter of this year, according to Morgan Stanley.

According to analysts, oil prices could increase by 30 USD per barrel after the US Energy Information Administration (EIA) and Bloomberg cut their forecasts for OPEC oil production in 2022, down 0.8 million barrels per day and down 1.2 million barrels per day respectively.

Experts left open the possibility that oil prices could reach 125 USD per barrel this year and 150 USD per barrel in the next year.

Senior analyst of Rystad Energy emphasised that if OPEC continues its current oil policy and wants to tighten the market, the world oil price could reach 100 USD per barrel. However, this scenario is unlikely to happen and the world oil price may be more than 90 USD per barrel this year. Oil price pressure will also ease when some countries, such as Canada, Norway, Brazil and Guyana increase their production.

Overcoming the short-term disruption caused by the Omicron variant, global oil demand in 2022, is forecast to remain strong. OPEC predicts an increase in oil demand unchanged from its previous forecast of 4.2 million barrels per day and total oil consumption projected at 100.8 million barrels per day this year.

The stability of oil prices also depends on many factors. Experts believe that Omicron is more likely to cause milder disease, which will bring optimism to the economic recovery process in 2022, thereby boosting global oil demand. However, OPEC still warned of the risk of the emergence of new variants of the SARS-CoV-2 virus, that could threaten the global economic recovery, strongly affecting the “black gold” market.