In 2022, we are seeing the results of a supply shock with a tight oil supply and supply disruptions driving prices well north of $100 / barrel to near record highs. But believe it or not, there is a scenario where we can see a situation with excess supply later this year or early next. Volatility will likely be with us for some time.
The potential oversupply scenario happens if OPEC makes good on its commitment to continue unwinding the supply cuts it made in 2020, and U.S. unconventional production grows as much as some analysts are forecasting. If these events occur, organizations may end up with an oversupply of oil, with as much as an extra 6.4 million barrels per day late this year. Add to that a potential new nuclear agreement with Iran and the volume of new oil coming onto the market this year will be even higher; some estimates have Iranian exports growing by up to a million barrels a day within a few months if a new pact is struck.
For the time being, we’re still experiencing a tight oil market although many are forecasting a growing oil surplus beginning in the second half of the year.