An OPEC Cut Just Got Closer

Enverus analysis covers anticipated oil price impacts from the latest SPR release and Omicron strain

Enverus Intelligence Research, a subsidiary of Enverus, the leading global energy data analytics and SaaS technology company, has released its latest PetroLogic report covering oil price expectations for the near-to medium-term. With the United States announcing a release from the Strategic Petroleum Reserve (SPR), the emergence of the Omicron COVID variant and an OPEC+ meeting, Enervus’ report analyzes a major inflection point for oil prices.

“The Nov. 23 announcement of a U.S. release of strategic oil stocks to dampen high prices and blunt inflation was long expected. Overall, the SPR release alleviates some near-term pressures and only takes roughly a dollar off our price forecast in the first half of next year. Now the focus is on OPEC’s response, especially if our robust expectations on U.S. supply growth materialize,” said Bill Farren-Price, director of Intelligence at Enverus Intelligence Research. “We continue to expect that OPEC will have to cut production sometime in 1H22 in the face of surging U.S. supply growth and weaker seasonal oil demand to keep prices supported above $65/bbl. OPEC could now move sooner, forcing oil prices significantly higher than our forecast.”

Al Salazar, vice president of Intelligence at Enverus Intelligence Research added, “Bullish bets have been based on a colder-than-normal winter propping up oil demand. However, such bets forgot about the COVID boogieman. Markets are now pricing the worst for global oil demand as there is extreme uncertainty about the Omicron variant. Travel restrictions combined with knock-on economic effects are now shifting the risk on oil prices decidedly to the bearish side.”

Key takeaways from the latest Petrologic report:

• The SPR release has a modest impact on our oil balances and price expectations. Instead, the focus now shifts to how OPEC will manage the agency consensus of an oil market surplus in Q122. Specifically, how will OPEC address robust US supply growth, weaker seasonal demand and the release of SPR barrels?
• OPEC’s response is the biggest risk to 1H22 balances and prices. We expect OPEC+ to pause supply additions and possibly cut output from January. If OPEC moves sooner, oil prices will be significantly higher than our forecast.

About Enverus
Enverus is the leading energy SaaS company delivering highly-technical insights and predictive/prescriptive analytics that empower customers to make decisions that increase profit. Enverus’ innovative technologies drive production and investment strategies, enable best practices for energy and commodity trading and risk management, and reduce costs through automated processes across critical business functions. Enverus is a strategic partner to more than 6,000 customers in 50 countries. For more information, visit Enverus.com.

About Enverus Intelligence Research
Enverus Intelligence Research, Inc. is a subsidiary of Enverus and publishes energy-sector research that focuses on the oil and natural gas industries and broader energy topics including publicly traded and privately held oil, gas, midstream and other energy industry companies, basin studies (including characteristics, activity, infrastructure, etc.), commodity pricing forecasts, global macroeconomics and geopolitical matters. Enverus Intelligence Research, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser.