Chasing $70 Oil

The chase is on once again for $70 oil. 

No matter how bearish the crowd gets, something always comes up that keeps prices from imploding. Last week, we talked about OPEC’s last stand, and how the oil cartel is desperately trying to lend crude prices a little support. 

Just as we expected, the group announced it wasn’t going to unwind its production cut of 2.2 million barrels per day until the end of March, 2025. And then just to put a cherry on top, OPEC and its allies stated that the cuts would be phased out over the course of 18 months — not the 12 months as originally planned. 

More importantly, they left the door wide open to extend these output cuts again after the first quarter. 

So if OPEC is delaying the unwinding of its production cuts, why did the market take the news so negatively, sending oil prices lower in the days that followed?

Let’s unpack what’s going on, and see why $70 oil is more than attainable for the long run… and why OPEC will continue the chase until it gets what it wants.

For years, there has been a battle in the media to control the narrative over global supply/demand growth. 

In one corner, we have the IEA and its overly bearish sentiment; in the other, it was OPEC steadfastly holding onto its optimistic outlook that demand was healthier than most believed. 

Neither was willing to cave to the other, until the IEA’s demand projections slowly started creeping higher, with its latest forecast in October calling for global demand growth this year to hit 900,000 barrels per day, followed by a million barrels per day in 2025. 

I noted a few times earlier this year that the revisions seemed to be one-sided, but it really was only a matter of time before OPEC started revising its own projections lower. Now, OPEC is calling for global oil demand to grow by 1.8 million barrels per day this year, then 1.5 million barrels per day next year. 

What’s interesting is that OPEC actually sees stronger demand for OECD countries in the Americas and Europe:

As usual, the bearish culprit is China. However, the more pessimistic people are on China’s economy, the more aggressive we’ll see its government boost growth. Loosening its monetary policy will ultimately help bolster crude prices. 

Even more bullish is the fact that a lot of people are forgetting something — it’s not China that will drive global oil demand growth in the years ahead, it’s India. 

Remember, India’s GDP this year is expected to grow by more than 7%, at least according to the IMF’s numbers. 

Couple India’s future growth with China’s vow to revitalize its economy, and we have a recipe for higher energy prices. 

What else could go wrong?

Stay tuned, because next time we’ll take a look at one geopolitical mess going on right now that could upend the oil markets going forward.