Oil prices are heading towards $100 per barrel

Many energy analysts believe that oil prices will soon rise above $100 a barrel for the first time in more than a year, since the turmoil that followed the Russian invasion of Ukraine. The price of Brent crude, the global reference, has risen by about 30 percent since the beginning of July, trading at about $96.50 per barrel on Wednesday.

“I think prices are starting to melt,” said Robert McNally, president of Rapidan Energy Group, a research firm.

Analysts say that the reason behind this rise is the significant decline in oil production organized by Saudi Arabia over the past year. The Kingdom’s ability and willingness to add and subtract supplies gives it significant control over the market for this vital commodity.

High oil prices increase energy costs for consumers and businesses, affecting the global economy. In the United States, the price of crude oil is about half the price of gasoline. Rising gas prices are putting pressure on motorists, complicating the Federal Reserve’s fight against inflation and raising concerns about the Biden administration’s economic management.

In fact, the Saudi-led group of oil producers known as OPEC+, which includes Russia, is holding back more than five million barrels per day, or about 5 percent of global supplies.

Gary Ross, CEO of trading firm Black Gold Investors, said the Saudis were “depriving the oil market of oil.”

Mr. Ross said the coming weeks and months may answer why the Saudis are keeping their production at around nine million barrels per day, nearly two million barrels per day less than a year ago.

“We will know what price they want when they decide to increase the supply,” he added.

Speaking at a conference last week, Prince Abdulaziz bin Salman, the Saudi oil minister, seemed to suggest that Riyadh was not ready to pump more, even as Brent crude prices reached above $90 a barrel.

While he denied that Riyadh was “raising prices,” he said that the Kingdom wanted to wait until there was “data and clarity” before putting more oil on the market. The Saudis say they are concerned about the risk that new supplies will lead to lower prices when recession fears remain.

It’s a tactic that, by stimulating more oil production from other countries or reducing demand, could lead to the drop in oil prices that the Saudis say they are trying to avoid.

“Higher prices in the near term could lead to further price declines next year,” Citigroup analysts recently wrote.

But global demand for oil has recorded strong growth recently, exceeding supply.

Despite the slowdown in China’s economy, demand in the world’s largest importer is expected to rise by 1.6 million barrels per day this year, about three-quarters of overall global growth, according to the International Energy Agency.

Rapidan’s Mr. McNally estimates that in the fourth quarter of this year, global oil demand will exceed production by 1.8 million barrels per day, or roughly 2 percent of the market.

Already, this supply deficit is leading to a rapid withdrawal of oil held in key storage areas such as Cushing, Okla. Even if OPEC+ begins to taper cuts next year, as some analysts expect, oil inventories will be “uncomfortably low,” further exacerbating the cuts. The International Energy Agency recently warned of the risk of price volatility.

The strength of demand is also evident in the huge profits achieved by refineries, especially diesel. The heavy crude grades the Saudis are blocking are particularly useful for making diesel, which is used in trucking, agriculture and industry.

Refiners seeking crude oil in exchange for diesel are willing to pay premiums because they are making profits “three times normal,” said Victor Katona, an analyst at research firm Kpler.

In a move that will further tighten the market, Russia recently banned most exports of diesel and other fuels, in order to help ease domestic prices.

However, it is the Saudis who have dominated the market over the past year by orchestrating a series of cuts, including a unilateral cut of 1 million barrels per day starting in July, which the prince called a “lollipop.”

The Saudis stimulated prices further this month when they said the latest production cut would extend until the end of the year. Russia also promised to reduce its exports by 300,000 barrels per day.

Russia benefits from Saudi-led measures. The International Energy Agency estimates that Russia took in $17.1 billion in oil export revenues in August, the highest monthly total in almost a year.

However, the Saudis may not be completely satisfied with the situation. They are producing far less than their capacity and are giving up market share. Ironically, the national oil company, Saudi Aramco, is spending billions of dollars to increase the amount of oil it can pump.

Mr. McNally, who served as an energy adviser to President George W. Bush, said he believes the Saudis are approaching the point where they might seriously consider increasing supplies. “I think the Saudis will not intentionally let things get out of control,” he said.