A “bazooka” of oil from the US reserve, lockdowns in China and a “surprising durability” of production in Russia are preventing Brent Crude oil from hitting $200 a barrel.
Investment research firm Third Bridge has set out its take on the current price situation, with the international crude benchmark currently sitting at around $90.
In March, US president Joe Biden announced a plan over the following six months to release one million barrels per day to tackle fuel prices.
Last week the reserves tumbled to their lowest level since 1984 as a result.
Third Bridge believes Brent will stay within in a range of $80-105 “for the next few months with a TWI discount of $8-10”.
Global lead for industrials and energy Peter McNally said: “There have been three main drivers pushing prices lower (or conversely, preventing prices from going to $200+ as some prognosticators had been forecasting).
“Those drivers are weaker demand in China due to lockdowns, a “bazooka” of oil from the US Strategic Petroleum Reserve (SPR), and the surprising durability of Russian oil production. Two of those issues are likely to reverse before year end 2022 as the SPR releases conclude in October and EU sanctions on Russian oil go into full effect in December.”
How things play out beyond December are not clear, with stockpiles of crude and refined products ath tier “lowest levels of the past five years” and “materially below normal”.
Continued volatility is therefore expected ahead, said McNally.
The impacts of energy costs and severe inflation have seen economists debating whether Europe and the US will head into a recession.
McNally added: “A full recession in the US and Europe could lead to an increase in inventories, but it is not something that we have seen yet, nor do our experts anticipate in the months ahead.”