OPEC+ said last week that “demand was going to be very slow in growing, we’ve got the pandemic ahead of us,” Ed Morse, the global head of commodities research at Citigroup Inc., said in a Bloomberg television interview. “Actually, the reverse is probably more true. We’re seeing an uptick in demand.”
“Next year is going to be a very big surprise upward in terms of non-OPEC production including from the U.S.,” Morse added. It’s going to be larger in terms of growth than “any other individual OPEC country.”
Price volatility is expected to increase over the coming weeks due to the open disagreement between OPEC+ and the U.S., according to a note from Goldman Sachs Group Inc. on Thursday. The oil market remained under-supplied and a potential release from U.S. strategic reserves may provide only temporary relief and could even backfire next year, the bank said.
“For now, OPEC+ holds all the cards, and if the SPR supplies do not get tapped, much higher prices will ensue,” said John Kilduff, founding partner at Again Capital LLC, referring to the release of strategic oil reserves. “If the winter dawns early, the worst-case price scenario for oil will occur — $100 plus.”
The OPEC+ decision may prompt the U.S. to release strategic oil reserves, although that would “only fill the gap during temporary production disruptions and not fix structural issues of underinvestment and rising demand,” according to a note from UBS Group AG strategist Giovanni Staunovo. The bank reiterated its forecast for Brent to reach $90 a barrel in the coming months.
It’s unlikely that there will be a major reaction from oil consumers, with Brent crude already cooling from its highs, said Vandana Hari, the founder of Vanda Insights. Demand is expected to continue rebounding, and stockpiles will likely drain substantially following the OPEC+ decision to keep supply tight, she said.