Will International Oil Prices Continue Their Soaring Trend?

[Asia Economy Reporter Song Hwajeong] Amid soaring international oil prices, tight supply and demand conditions are expected to continue, but further increases are likely to be limited.

According to Kiwoom Securities on the 23rd, the U.S. Energy Information Administration (EIA), the Organization of the Petroleum Exporting Countries (OPEC), and the International Energy Agency (IEA) recently released their "October Energy Outlook Reports," commonly noting that winter heating demand may increase. The three organizations showed somewhat mixed revisions to their demand growth forecasts for this year. OPEC expects that rising gas prices will shift winter gas demand to crude oil but lowered its demand growth forecast considering weaker-than-expected crude oil demand in the first to third quarters of this year. In contrast, the IEA raised its demand forecast by 170,000 barrels this year, taking into account that the recent energy crisis could increase crude oil demand.

Recently, international oil prices have surged sharply amid concerns over supply shortages under low inventory levels. As a result, West Texas Intermediate (WTI) crude oil surpassed $80 per barrel. The IEA expects that even if U.S. production rebounds in October and OPEC+ (OPEC member countries and non-OPEC allies) eases production cuts, leading to a significant increase in oil supply in October, inventory declines in the oil market will continue. The EIA raised its average annual oil price forecasts for this year and next, considering that excess demand conditions could be stronger than expected.

Tight supply and demand conditions are expected to persist. Shim Soobin, a researcher at Kiwoom Securities, said, "OPEC lowered its demand forecast in this report and mentioned that a colder-than-usual winter could increase heating demand but might simultaneously reduce travel distances, so it seems unlikely that OPEC+ will accelerate easing production cuts." He added, "Therefore, the market's tight supply and demand conditions will continue."

However, further price increases are expected to be limited. Although winter heating demand may rise in the fourth quarter, crude oil supply is also scheduled to increase during the same period, so the phase of expanding excess demand is unlikely. Researcher Shim explained, "Considering that the EIA's oil price forecast after the fourth quarter of this year was in the $60-per-barrel range, the recent upward revision in the oil price forecast seems to reflect an expectation that the current high price level may last longer rather than further price increases." He added, "Since tight supply and demand conditions are expected to continue until early next year, oil prices are likely to remain around the $80-per-barrel level for the time being, but the possibility of a further sharp rise due to supply shortages is low."