Amrita Sen, founder and director of research at Energy Aspects, examines global oil demand, inventories, and the factors driving the current rise in prices.

London

Oil prices have climbed to a five-month high, influenced by several market factors as the Organization of the Petroleum Exporting Countries (OPEC) is nearing a decision that could further affect market dynamics. Amrita Sen, the founder and director of research at Energy Aspects, has provided insight into the current state of global oil demand, inventories, and the primary drivers behind the recent surge in oil prices. This analysis comes at a crucial time when the global economy and energy markets are closely watching OPEC's next moves, which have historically had significant impacts on oil prices.



Oil rises to five-month high as OPEC decision looms

So what kind of levels are you looking for this crude market to test in the next few weeks and months? I mean, if you're, like you said, Brent is at 89, so calling for $90 is hardly a big call right now. But look, you know, we have been saying that we are going to be breaching $90 in the summer. If anything, that's come a little bit earlier, although we are trading the June contract now. So that is very much the start of the summer period. But look, we have seen inventories not build or even draw counter-seasonally in Q1 in certain months. The physical market continues to remain very, very strong. And you're just seeing, finally, that being reflected in prices. Prices have lagged, what the physical has been telling us, for a good three months now. But now, really, we are starting to see that catch up. We have seen false starts before when it comes to demand picking up in China. How real is that demand story? I actually don't think the China demand story is the driver here. If anything, we are pretty conservative on Chinese demand growth, sub-5% GDP numbers, but also only about half a million barrels per day of year-on-year demand growth. China is actually more of a staple story. I don't think it's negative, but it's not hugely positive either, where I think the bigger drivers right now is on the supply side. We are seeing Mexican production struggling and Mexico's national oil company, Pemex, has come and cut quite a few refiners of production. You've seen the U.S. production drop that happened in January, which was far steeper than most people had expected. That's still struggling to grow. So you have seen quite a few pockets of supply weakness. And having said that, demand overall on a global basis is healthy, but I don't think it's necessarily a China story. If we look at the demand story, though, there's a lot of spare capacity there. I'm looking at Saudi Arabia, I'm looking at the United Arab Emirates. At what level can you see OPEC Plus, led by them, actually step in and add more supply to the market? So I think the one thing to keep in mind is that OPEC Plus, Saudi Arabia, UAE, whoever you really talked about, they are not targeting any specific price levels. For them, the key is going to be to ensure that all the inventories that have built up – let's not forget, we did have a build two years ago with all the U.S. SPR that was released, but we hadn't lost Russian production. Last year, yes, the second half we drew, but on balance, the first half we built a fair bit as well, so the overall draw was small. So OPEC Plus is looking to draw down the excess inventory to make sure that the market is in balance, and only then will they gradually bring back production, and again, gradually is the key word. You're not going to see them come back with all their voluntary cuts back. It will be a very slow process.

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