Improved oil supply and demand outlook helps OPEC+ extend production increase decision International oil prices rose on January 4

Due to the improvement of the supply and demand prospects of the international oil market and the expectation that OPEC and production reduction partners continue to increase the crude oil supply quota in line with market expectations, the international crude oil futures price consolidated strongly in the overnight market, fluctuating higher in the morning of the 4th, and consolidating in a narrow range in the afternoon, and the international crude oil futures prices rose
at the close.

Light crude futures for February 2022 delivery rose $0.
91, or 1.
20%,
to settle at $76.
99 a barrel on the New York Mercantile Exchange by the close of the day.
London Brent crude futures for March 2022 delivery rose $1.
02, or 1.
29%, to settle at $80 a barrel
.

OPEC issued a statement on January 4 that the 24th OPEC and non-OPEC oil producer ministerial meeting held on the same day decided to continue to raise the average crude oil production limit of the month by 400,000 barrels per day as planned in February, and the next ministerial meeting
will be held on February 2.

According to survey data released by S&P Global Platts late on the 3rd, analysts believe that due to improved refinery runs and strong exports, U.
S.
commercial crude oil inventories fell by 4.
4 million barrels month-on-month last week, while gasoline and distillate inventories are expected to increase by 1.
9 million barrels month-on-month, and U.
S.
refinery operating rates are expected to increase by 0.
6 percentage points to 90.
3%
last week.

U.
S.
commercial crude inventories are expected to fall by 3.
4 million barrels last week, while gasoline and distillate inventories are expected to rise by 3 million barrels and 2.
7 million barrels
, respectively, according to a Reuters survey.

The outlook for oil supply and demand has improved significantly

Russian Deputy Prime Minister Alexander Novak said in an interview with the media after the ministerial meeting on the 4th that monitoring and analysis showed that although the number of new coronavirus infections has increased a lot, the level of hospitalizations is quite low, which has not hit oil demand
.

OPEC-elect secretary-general Haitham al-Ghais from Kuwait said on the 3rd that by the end of 2022, global oil demand should return to the pre-epidemic level
.
OPEC and its production reduction partners are important
for the stability and balance of the oil market.

According to Bloomberg, the OPEC Joint Technical Committee said on the 3rd that global average daily crude oil production in the first quarter of 2022 will be 1.
4 million barrels higher than demand, compared with the previous expectation of 1.
9 million barrels
.

Phil Flynn, senior market analyst at the US Price Futures Group, said on the 4th that not only is US oil inventories expected to fall significantly last week, but global supply is also tightening
.

As of November 2021, oil inventories in advanced economies were 85 million barrels
less than the average from 2015 to 2019, the data showed.

An anonymous OPEC representative said OPEC is not concerned
about continuing to raise supply when supply is currently greater than demand because oil inventories are currently low and consumer countries usually replenish them during the off-season.

Joe Perry, senior analyst at FX broker GAIN Capital Group, said the market's expectation ahead of OPEC's monthly meeting with production reduction partners was that it would continue to increase production
.
As coronavirus fears wane, demand is expected to pick up later in 2022, and the likelihood of a recovery is rising
.
In addition, countries such as the United States, which released crude oil in December 2021 in response to higher oil prices, may soon need to start restocking, which may also lead to increased
demand.

Jay Hatfield, chief executive of Infrastructure Capital Management, said the outlook for oil demand remains positive
as the less virulent Omicron variant has a mild near-term impact on oil demand and is likely to accelerate herd immunity.

The actual increase in production was limited

OPEC and its production reduction partners continue to choose to raise production, reflecting producers' confidence in oil demand, and on the other hand, producers are expected to increase production significantly less than they announced
.

Hans van Cleef, senior energy economist at ABN-AMRO BANK, BELIEVES THAT AS MORE AND MORE OIL PRODUCERS STRUGGLE TO INCREASE PRODUCTION, THE BIGGEST CHALLENGE BEGINS TO BE HOW TO ACTUALLY IMPLEMENT POLICIES
TO INCREASE CRUDE OIL SUPPLY.

Amrita Sen, co-founder of Energy Aspects, an energy information service, expects OPEC and its partners to increase production by only 130,000 barrels per day in January and 250,000 barrels per day
, respectively.
Even if OPEC+ ostensibly boosts production by 400,000 barrels a month, the actual increase in production is either half or less
.

Peter McNally, head of Third Bridge Group Limited, an industrial materials and energy consultancy, said OPEC+'s continued increase in crude supply quotas was a sign
that oil demand would continue to grow despite the recent restrictions imposed by the Omicron variant.

Edward Moya, senior market analyst at OANDA, said oil prices moved higher
after OPEC+ showed greater confidence that the outlook for global oil demand would only be dealt a limited blow.

Herman Wang, an OPEC and Middle East plate expert at S&P Global Platts, said on the 4th that oil prices are still at the level of around $80 per barrel, which is likely to be higher
than the level that the US president wants.
So far, the market has shown resilience in the face of the Omicron variant, which OPEC considers the effects to be mild and short-lived
.
Therefore, despite expectations of oversupply in the first quarter of 2022, there is still a lot of optimism about the direction of oil demand
.

Wang expects OPEC and its production reduction partners to continue their policy
of raising the crude supply limit by 400,000 barrels month by month at their monthly meeting on the same day.
What it will do in the next two months is another question
.

Moya believes that unless risk appetite worsens or there is a sell-off in the stock market, Brent crude futures should continue in the $80 per barrel range for some time
.
New York crude futures are likely to consolidate
at the $77 per barrel level.

Geopolitical risks are highlighted

In addition, the tension between Russia and Ukraine and the uncertainty of negotiations on the Iranian nuclear issue still bring a certain risk premium to oil prices in the short term, which has some support
for oil prices.

Moya said it appears that geopolitical risks such as Russia-Ukraine tensions and protracted negotiations on the Iranian nuclear issue also support higher oil prices
.

Helima Croft, head of global commodities strategy at RBC Capital Markets, said the oil market remains vulnerable to geopolitical issues such as the Russia-Ukraine standoff and the Iran nuclear negotiations in 2022, and these geopolitical uncertainties need to be closely watched
.

For the Russian-Ukrainian issue, Croft said that if Russian troops do enter the territory of Ukraine, Russia will be subject to major sanctions
.
If Russia cuts off gas supplies to Europe, it will lead to a rather serious energy crisis
.

However, the biggest uncertainty in the oil market is focused on the demand side, and the progress between Russia and Ukraine raises the possibility that
Russia may reduce oil and gas supplies to Europe or at least threaten to do so, Hatfield said.
It is also possible that the lifting of sanctions on Iran will lead to more Iranian crude oil entering the market and weigh on oil prices
.
In order to reduce retail oil prices faster, the Biden administration may seek to lift sanctions
on Iran.

Iranian Foreign Minister Hossein Amir-Abdollahian said a few days ago that the eighth round of talks aimed at reviving the Iran nuclear deal will resume in Vienna on the same day, and the second round of talks will be based on a new joint document
.
The important issue is for Iran to be able to sell its oil easily and unfettered, and the foreign exchange returned can be returned to Iranian bank accounts, which can bring economic benefits
to different industries.

The eighth round of talks on the Iranian nuclear issue began on December 27, 2021, and continued on the 3rd after a suspension during the New Year period
.
With the parties' intention to conclude negotiations in February 2022, the eighth round of talks
could be the last.