As our global economy recovers from the pandemic, energy prices increase as we continue to see inflation throughout the world. Two things that can affect whether prices at the gas pumps continue to increase are OPEC+ and U.S. shale outputs.
With people resuming road and air travel, the global oil demand has almost rebounded to pre-pandemic levels. Prices of oil are over $86 a barrel with some believing it could surpass $100 a barrel which could cause disruption to our rebounding economy.
The International Energy Agency (IEA) expects an increase of 100 million barrels per day (bpd) in the first quarter of 2022 and oversupply could rise to 2.2 million bpd by the second quarter of next year. All of this is based on whether OPEC and its allies plan to increase production by 400,00 bpd per month. The IEA monthly report, which was published on Tuesday, says that OPEC is nowhere near its target, and produced much less in September and October. If this continues, the surplus could be wiped out as early as Q1 of next year.
The U.S. and other big energy consumers have requested that OPEC+ increase output sooner. The group has refused due to concerns over the pandemic causing areas to spike in cases resulting in lockdowns once again during the winter months.
Over the last decade, the U.S. has relied on the shale industry to provide oil. Marco Dunand, chief executive of merchant Mercuria Energy Trading said, “There’s one element where you could probably further increase capacity, which is shale in the U.S.”
The expectations from the IEA are to increase production as much as 480,000 bpd in both crude and liquified natural gas (LNG) during the second quarter of next year and 1.1 million bpd for all of 2022. However, the EIA expects output to be lower, with an increase of 220,000 bpd by the second quarter of 2022 with an overall increase of 1.25 million bpd for the year.
U.S. shale companies continue to struggle with labor and equipment shortages. William Berry, chief executive at Continental Resources said, “I don’t think it’s appropriate for anyone in the industry to be overproducing into that potentially fragile oversupplied market. It’s still pretty fragile.”
Either way when demand increases beyond supply that is available, prices increase while the world waits for more supply to come to market.