Where will oil prices go in the near future?

29 Jun 2022 , 02:47 PM

Oil prices continue to be much above the $100 per barrel mark. There is some hope that with global economic slowdown worsening in the coming days, demand for oil will go down. This will start bringing oil prices down. On the other hand, shortage of spare production capacity with OPEC countries means that these countries will not be able to increase their production of oil in the near term. So if demand does not come down signicantly, in the absence of significant increase in supply, oil prices are more likely to remain at the present levels than come down significantly.

Concerns about OPEC not having adequate spare capacity have increased after UAE said that it is producing near its full production capacity. Total spare production capacity of OPEC countries is estimated to be around 3-4 million barrels per day. According to some estimates the various sanctions on Russian oil have removed around 4 millions barrels of oil per day from global oil supply. So if the entire spare prioduction capacity of OPEC of 4 million barrels per day is available and OPEC increases its supply by this amount then the loss of Russian oil because of sanctions will be completely offset. But UAE’s statement implies that actual spare production capacity available with OPEC is much less than this. In this scenario upward pressure on oil prices may continue in the foreseeable future.