The global oil market is now seeing prices steadily rising toward the $90 per barrel range, and the possibility of reaching $100 per barrel is “entirely possible,” according to Bob McNally, President at Rapidan Energy, speaking on CNBC’s “Squawk Box” on Monday.
The recent surge in oil prices is reflected value of Alaska North Slope oil, which was above $89 a barrel on Friday and popped up over $90 last week for the first time since November, 2022.
McNally told CNBC the current oil market situation as “climbing a wall of doubt and skepticism,” indicating that even though there are reasons to be skeptical, the market’s fundamentals are driving the increase in prices.
Energy stock traders are particularly attentive to the absence of a notable decline in Russian oil supply, in spite of the G-7 embargo on Russian oil products that went into effect at the start of the year. India, China, and Turkey are still keeping the market for Russian oil strong and Russia is laundering its oil through other countries.
The market dynamics are complex, McNally said, with the market “dancing in a macro minefield.” He pointed to the impact of OPEC+’s production cut policy, warning that it will “put a huge deficit into the market into the second half.”
A veteran global energy expert, McNally is founder and president of Rapidan Energy Group, a Washington-based oil market, policy, and geopolitical consulting firm who last week on CNBC predicted a sharp rally in oil prices in the second half of this year. He also explained last week that China is hoarding oil, pulling in well over one million barrels a day and putting it into a strategic reserve, “because they fear a war next year.”
Saudi Arabia, a significant player in global oil production, is unlikely to reverse announced cuts even if the prices reach $92 per barrel. According to McNally, the Kingdom seems to be waiting to see that “the deficits they are creating are materializing before our eyes” before deciding to apply any brakes to their cuts.
The upward trend in oil prices is a challenge to the Biden Administration, which currently has limited options to reduce gasoline prices for American businesses and consumers. If the national average prices at the pump were to hit $4 per gallon, it could mean the Biden Administration will release even more oil from the Strategic Petroleum Reserve, which is already at its lowest level since its inception.
In addition to Alaska North Slope crude prices inching up, Brent prices have consistently risen for seven straight weeks.