Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Analysis-Will gasoline prices drop in 2022? It depends on OPEC and U.S. shale

CommoditiesNov 17, 2021 06:46AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: A gas pump is seen in a car at a Shell gas station, after a cyberattack crippled the biggest fuel pipeline in the country, run by Colonial Pipeline, in Washington, D.C., U.S., May 15, 2021. REUTERS/Andrew Kelly/File Photo

By Stephanie Kelly, Noah Browning and Sabrina Valle

NEW YORK (Reuters) - Whether fuel pump prices fall in 2022 depends on two groups of producers who are struggling to increase oil output in the wake of the pandemic: OPEC and its allies and U.S. shale firms.

The global oil industry's slow response to the surging demand in 2021 has contributed to soaring energy costs and inflationary pressures worldwide. As the economy recovers and populations resume road, rail and air travel, global oil demand has nearly rebounded to pre-pandemic levels.

Supply has not recovered so fast - so to keep up with demand, the industry is burning through oil kept in storage.

Benchmark oil prices have surged to multi-year highs over $86 a barrel, and some economists warn crude could surpass $100 a barrel, threatening the recovery.

    The International Energy Agency (IEA) expects the roughly 100 million barrels per day (bpd) market to flip into surplus in the first quarter next year, and for supply to outpace demand by 1.1 million bpd, taking some heat out of prices. That oversupply could rise to 2.2 million bpd in the second quarter, the energy watchdog forecasts.

Those projections, however, depend on OPEC and its allies increasing output at 400,000 bpd per month, as the group known as OPEC+ slowly unwinds cuts it was forced to make during the pandemic.

But the IEA's monthly report on Tuesday showed OPEC+ is nowhere near its targets: it produced about 700,000 barrels per day (bpd) below those levels in September and October. That is largely due to top African producers Nigeria and Angola, whose maintenance and investment problems are likely to weigh on output next year.

If that underproduction continues, it could wipe out much of the surplus in the first quarter and keep markets tight for longer. The IEA hiked its 2022 forecast for average prices to $79.40 a barrel, even as it said higher supply could give some reprieve.

Commodities trading giant Trafigura warned on Tuesday of a "very, very tight oil market" as declining production investment, partly due to an industry transition to greener energy, adds to price pressure.

The United States and other big energy consumers have asked OPEC+ to increase output more quickly, but the group has refused due to concern coronavirus may again sap demand during the northern winter.

The market is now looking to the U.S. shale industry, which has provided most of the non-OPEC output increase over the past decade.

"There's one element where you could probably further increase capacity, which is shale in the U.S.," said Marco Dunand, chief executive of merchant Mercuria Energy Trading, at the Reuters Commodity Trading Summit this week.

The IEA expects a massive 480,000 bpd rise in U.S. crude and natural gas liquids (NGLs) output in the second quarter of 2022, and by 1.1 million bpd for all of 2022.

The U.S. Energy Information Administration's near-term expectations are lower, with overall crude and NGLs output set to rise by 220,000 in the second quarter. The EIA sees U.S. output accelerating in the second half of 2022, for a 1.25 million bpd increase in crude and NGLs for the year.

However, shale producers have responded more slowly than during previous price rises. Investors and shareholders have demanded greater capital discipline from the industry than in previous boom-bust cycles, and are punishing firms that invest in capacity and rewarding those that pay dividends and reduce debt.

"We're at $83 a barrel on Brent, and we see no big surge in rig counts," said Jeffrey Currie, Goldman Sachs (NYSE:GS) global head of commodities research, at the Reuters summit.

Shale companies are grappling with labor and equipment shortages, while others say demand is still too uncertain to boost output as the industry recovers from the pandemic-induced recession.

"It's still pretty fragile," said William Berry, chief executive at Continental Resources (NYSE:CLR), in a recent earnings call. "I don't think it's appropriate for anyone in the industry to be overproducing into that potentially fragile oversupplied market."


Non-OPEC Latin American producers are increasing output. Guyana, a relative newcomer on the global oil stage, is slated to start producing 220,000 bpd of extra capacity at an Exxon-run floating production system early next year.

Brazil's state-run Petroleo Brasileiro SA is ramping up its 180,000 bpd floating platform Carioca, which in August started production at Sepia deep-water field in the Santos Basin.

Venezuela has seen its exports increase after receiving Iranian condensate, but it is unclear if that can be sustained, said Francisco Monaldi, director of the Latin American Energy Program at Rice University's Baker Institute.

Canadian supply could rise by roughly 100,000 bpd in the first quarter, said Ann-Louise Hittle, vice president at consultancy Wood Mackenzie, but oil companies in the world's fourth-largest producer are also restraining output.

Total oil supply should reach 99.8 million bpd in the first quarter of 2022, surpassing demand estimated at 98.9 million bpd, said Hittle.

But energy consultancy FGE warned the market supply-demand balance may not change quickly with developed countries' inventories at six-year lows.

"Although prices will probably trend down from last month’s peak, the current low inventory position sustains the risk of prices spiking higher in the next few months," FGE said.

Analysis-Will gasoline prices drop in 2022? It depends on OPEC and U.S. shale

Related Articles

Oil heads for sixth weekly gain amid supply concerns
Oil heads for sixth weekly gain amid supply concerns By Reuters - Jan 28, 2022 3

By Rowena Edwards London (Reuters) -Oil prices rose on Friday, heading towards a sixth consecutive weekly gain, as geopolitical tensions continue to raise supply concerns. Brent...

Crude Oil Higher; Sixth Consecutive Week of Gains Looms
Crude Oil Higher; Sixth Consecutive Week of Gains Looms By - Jan 28, 2022

By Peter Nurse -- Oil prices pushed higher Friday, set for another week of gains, helped by continued geopolitical tensions between Russia and Ukraine and with top...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Steven Kemp
Steven Kemp Nov 17, 2021 9:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
wrong again bidens handlers are at fault by trying to ********oil here
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email