Oil Prices to Record the Highest Annual Increase ever, Exceeding $100

Average price for the OPEC basket of crude oils reached $69.89 per barrel, in 2021, compared to $41.47 per barrel in 2020, registering a growth of nearly 70 percent, on an annual basis, KAMCO, the Kuwaiti Investment company revealed, indicating it was the highest growth rate ever recorded, in the oil market.

On the other hand, the average price of the Brent blend, which is the worldwide benchmark, reached $70.8 per barrel during the Year 2021, compared to $41.67 per barrel, during the Year 2020.

Such an increase came after oil prices recorded growth over 8-month, in a row, during the year, while the declines during the remaining 4-month, mostly limited in the single digits, and sharp revival followed.

Oil prices reached their highest levels recorded, in 7-year, during the 3rd week of January 2022, supported by high demand, the reduction of restrictions related to Covid-19, production disturbances in some oil-producing countries, and the intensification of cold weather, according to the Kuwait Investment Company, in addition to the shift from using gas to oil for heating and electricity generating.

The prices of the OPEC basket of crude reached its highest level, since October 2014, on January 20, 2022, at a price of $88.55 a barrel.

The prices of Kuwaiti crude and Brent blend experienced similar growth. Prices ranged around $90 a barrel last week, with several estimates now pointing to $100 a barrel, in the 2nd quarter of 2022, supported by the continued improvement, in demand, in addition to the limited growth of oil supplies.

As well, the sentiments in the oil market remained positive, at the beginning of 2022, amid expectations of high demand coupled with diminishing supplies, in some major producers, around the world.

The decline in the degree of risks, associated with the Omicron mutating strain added to the positive sentiments, as oil prices remained around $90 a barrel.

Several estimates now indicate that oil prices will reach triple digits this year, as supply struggles to meet the increasing demand, resulting from many years of lack of investment, as well as a reassessment of supplies not only from the OPEC group, but also from non-OPEC producers around the

World.

Trend of oil prices since the beginning of the year

The recent rise in crude oil prices, was also supported by the high demand for refined products and the cold weather in the northeastern United States, boosted the demand for diesel, as a heating fuel at a time when demand from the road transportation sector was also rising.

Gasoline prices have also risen around the world, due to increased mobility. Other factors that contributed to the price hike were the availability of a limited number of Chinese exporters’ supply quotas, the tendency to replace natural gas with diesel to generate heating oil and electricity, the recovery of commodities on a larger scale around the world, as well as untapped demand at much more final oil markets, such as Jet fuel.

In addition, the Dollar has taken a generally bearish trend against a basket of major currencies, after peaking in November 2021.

The latest data on COVID-19 indicated that the mutated Omicron strain indicates that the virus has turned into an endemic stage, because despite the increasing number of cases, the current situation is more manageable than previous strains of the Corona virus.

Recent announcements from many companies, in Europe, have shown that restrictions are being reduced and offices are opening up to receive more employees.

Similar situation in the United States, was observed, even though the problem of travel with China is not yet resolved, and because it is more about protocols than cases of COVID-19. Meantime, as much as 10 billion doses of vaccine have been administered world-wide.

On the oil supply front, production disruptions have been reported, in several countries including Libya and Ecuador, while the unrest in Kazakhstan led to fears of supply disruptions.

Russia also stated that restoring production after the OPEC and allies’ cuts will not be easy to implement, due to technical challenges and lack of investment, in oil production, over the past few years from a glut of oil supplies.

OPEC oil production experienced marginal growth in December 2021, but it remained above the level of 28 million barrels per day, reaching 28.09 million barrels per day, an increase of 90,000 barrels per day, according to data issued by Bloomberg Agency.

A secondary OPEC sources showed growth, at slightly higher levels on the back of the sharp decline, in production mainly in Libya and Nigeria, which was partially offset by higher production, in Saudi Arabia, Venezuela and Angola.

Crude oil production remained stable at 11.7 million barrels per day, during the week ending January 14, 2022.

And the US Energy Information Administration, in its latest report on short-term energy expectations, expected an increase in oil stocks in the near term.

As a result, the agency expected oil prices to decline in 2022 and 2023 from the levels recorded in 2021.

It is expected that oil prices will decline from $79 a barrel in 2021 to $75 a barrel in 2022 and then decline again to $68 a barrel in 2023.

The average forecast for Brent blend, according to Bloomberg Agency estimates, almost coincides with the assessment of the US Energy Information Administration, as the agency’s forecast amounted to $74 per barrel for 2022 and 2023.