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Squeeze in forecast as oil prices rise

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The global oil market is tightening and demand for 2022 is likely to be higher than expected and supply lower than forecast, the International Energy Agency said Wednesday.

Although the omicron variant was causing record infections, the surge was not denting oil demand as previous jumps in infections have, with travel and other transportation remaining “robust,” said the forecasting group, which is based in Paris.

Oil prices are now approaching $90 a barrel, exceeding the seven-year highs reached in October. Brent crude, the international standard, briefly traded at higher than $89 a barrel Wednesday, closing out the day at about $88. West Texas Intermediate, the U.S. bench mark, was $86 a barrel late Wednesday.

The findings in the agency’s monthly Oil Market Report come as the industry faces difficulties raising production levels as prices climb higher. The group of oil producers known as OPEC Plus continues to fall short on its promised 400,000 barrel a day monthly increases, raising production by only 250,000 barrels a day in December. The major shortfalls continue to from Nigeria and Angola. Russia pumped slightly below its quota in December, tending to confirm forecasts that it has reached its short-term limits.

The International Energy Agency said current prices were likely to lead to more drilling and production in the United States, the world’s largest oil producer, and elsewhere. That additional oil could bring price relief for consumers.

On the other hand, the agency sketched out what could be an environment for further price rises. Oil in tank farms and other storage facilities in industrialized countries has reached seven-year lows, while so-called spare capacity, the amount of oil that could be quickly pro

duced, is likely to decrease to around 3 million barrels a day, or 3% of world supply, the agency estimated. Most of those extra barrels are in Saudi Arabia and the United Arab Emirates.

If demand is strong or supply unexpectedly weak, those conditions mean “oil markets could be in for another volatile year in 2022,” the agency said.

The sizzling start to the year has prompted Goldman Sachs to boost its forecasts for global benchmark Brent, predicting $100 oil in the third quarter. Concerns about the fallout from the omicron variant of the coronavirus have eased, global stockpiles are shrinking and unrest in the Middle East is back on the radar after a drone attack on oil facilities in the United Arab Emirates.

“Commercial oil inventories are low, oil demand could potentially rise to record levels this year, and spare production capacity is expected to fall to multiyear lows,” said Giovanni Staunovo, commodity analyst at UBS Group. “The market will be sensitive to any news of potential supply disruptions.”

Oil’s rally poses a challenge for consuming nations and central banks as they try to stave off inflation while supporting global growth.

The White House plans to continue to monitor prices and hold discussions with the Organization of Petroleum Exporting Countries and its allies as needed, a National Security Council spokeswoman said Tuesday.

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2022-01-20T08:00:00.0000000Z

2022-01-20T08:00:00.0000000Z

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