The market chatter surrounding Brent crude oil futures potentially reaching $100 per barrel has resurfaced, with the Brent front-month contract hitting a high of $91.59 on Friday. Despite this, the price has since decreased slightly, trading at $89.67 per barrel on Tuesday. The next resistance level to be tested is around $95 per barrel, with some experts suggesting that $100 oil is almost inevitable due to tightness in the market created by OPEC+ production cuts led by Saudi Arabia and Russia.
In March, OPEC+ agreed to extend its oil production cuts of 2.2 million barrels per day until the end of June to support the market. The group reiterated this decision at their latest meeting on April 3, indicating that some countries like Iraq and Kazakhstan have pledged to improve their adherence to production targets. Meanwhile, Russia announced that its cuts in the second quarter of 2024 will be based on production rather than export volumes.
While compliance within OPEC+ is crucial, other factors are influencing oil prices as well. For example, U.S. crude oil inventories have been bullish recently, with a significant drawdown reported by the American Petroleum Institute. Tensions in the Middle East and Ukrainian attacks on Russian energy infrastructure are also contributing to higher prices, along with OPEC+ actions to stabilize the market.
Although OPEC+ does not always openly admit to manipulating oil prices, it recognizes its influence on the market’s direction, both upwards and downwards. While the group aims for a price range of at least $80 or higher, excessively high prices, such as $110 to $125, could have negative consequences in 2024. Such extreme prices could lead to inflationary impacts that prevent global central banks from lowering interest rates, potentially causing demand destruction.
In light of these considerations, OPEC+ may prefer to maintain oil prices within a range of $80-90 per barrel. Should the price approach $100 due to strong demand in a tight market, the producers’ group may choose to keep prices close to or slightly below that level. They could also consider reversing their production cuts to increase output and stabilize prices within a more manageable range for the market and consumers alike.