And that may not be the end of it. Stockpile data for the OECD countries suggest that there may be more demand revisions to come from the IEA.

Commercial oil inventories among the developed economies of the group’s members fell by 60 million barrels in December, and initial estimates suggest they dropped further last month. That comes in stark contrast to the warnings from Saudi Energy Minister Prince Abdulaziz bin Salman that the oil balance would swing from deficit to surplus in the final month of 2021.

That the oil market is still tighter than forecasts indicate won’t come as a huge surprise to those who’ve been following the rise in prices over the past two years. In a remarkable parallel to the oil squeeze of 2007-2008, the path of Brent oil prices has almost exactly matched that of the earlier period during the post-pandemic recovery.

High oil prices, which are helping to stoke inflation, will inevitably start to slow demand growth, but the farther prices rise, the harder they’ll fall.

The one significant divergence came after US President Joe Biden threatened, then delivered, a release of oil from the strategic petroleum reserve when the OPEC+ group of oil producers refused to open their taps more quickly. The relief was short-lived, and by the end of January, oil prices were back where they had been at the same point in 2008.

How long they continue on their upward path may depend on whether the US shale patch or a revival of the Iran nuclear deal rides to the rescue.

It has been clear for many months that the OPEC+ group is incapable of adding the supply it keeps promising. The latest analysis from my colleagues at BloombergNEF shows that 15 of the 19 countries with output targets failed to meet them in January. Production by the 13 OPEC countries rose by just 65,000 barrels a day last month — one-quarter of the planned increase.

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So the supply is going to have to come from somewhere else. The US Energy Information Administration has been getting steadily more bullish about the shale sector. Earlier this month it raised its domestic production forecast by another 200,000 barrels a day for the second half of 2022 and most of 2023. It now sees production approaching its pre-pandemic peak by the end of next year.

A quicker source of incremental supply might be a return to the 2015 Iran nuclear deal that could rapidly unlock 1.3 million barrels a day of the Persian Gulf country’s production, enough to upend forecasts of oil prices rising above $us100 a barrel later this year. The Biden administration says a deal with Iran is now in sight but rapid advances in the Islamic Republic’s nuclear program mean the window for reviving the accord is narrowing.

Without those production boosts, though, the market will have to be brought back into balance by demand destruction. High oil prices, which are helping to stoke inflation, will inevitably start to slow demand growth, but the farther prices rise, the harder they’ll fall.

Bloomberg

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