The head of the International Energy Agency (IEA) said on Wednesday oil prices “flirting with $100” were a real risk for the global economy, adding he was surprised by the recent OPEC+ decision to cut output.
“This decision may put further upward pressure on inflation and weaken the global economy,” Birol told Reuters on the sidelines of the COP 27 climate conference in Egypt.
Analysts say oil prices could return to above $100 per barrel again, sooner than expected, oilprice.com reported.
Even though economic slowdown and recession fears have long weighed on oil prices, OPEC+ October cuts, primarily by Saudi Arabia and the EU embargo on imports of Russian crude by sea from next month—and of Russian oil products from February 2023—could overtighten the market and send oil above $100 a barrel again.
Analysts will also closely watch China’s possible easing of COVID lock downs at some point next year. Although current lock downs is slowing down demand and offering a bearish outlook for the oil market, bullish factors could take the upper hand in the near term, sending oil prices to triple digits again, analysts say.
The OPEC+ decision to cut the headline production target by 2 million barrels per day (bpd) as of November did stabilise the oil market, as OPEC+ claims its goal is. Brent prices stabilised at above $90.
“The oil markets are more vulnerable for a $10 move higher than lower,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on a Gulf Intelligence webinar earlier this week. Talking about a $10 move in oil prices, the risk is still to the upside, Hansen added, citing the first signs of a potential Chinese easing in COVID sometime next year, the OPEC+ cuts, and the EU sanctions on Russian oil.