Friday was another day on the oil rollercoaster with prices rising overnight as a sharp decline in US crude inventories offset a higher than expected increase in OPEC+ production.

The benchmark Brent crude climbed to US$118.22 ($162.69) per barrel after the Energy Information Administration reported that crude inventories had dived by 5.1 million barrels, substantially more than the 500,000bbl drop forecast by analysts.

It follows a fall in prices the previous day on speculation that OPEC+ exclude Russia from its production quotas, paving the way for other members to increase their output.

While the expanded cartel, which consists of the OPEC nations plus several of the world’s largest non-OPEC nations (including Russia), did not touch on this subject it did agree to raise its production target by 648,000 barrels a day in July and August, up from 432,000bpd increases that it had stuck its guns to since last year.

The volatility should come to no surprise to anyone.

Oil was already staring a supply-demand gap in the face before the Russian invasion of Ukraine due to years of underinvestment leaving supply, which had been dialled back during the height of the COVID-19 pandemic, struggling to catch up with a faster than expected economic recovery.

Consumers facing steadily prices were given a solid kick in the unmentionables when Russia decided to invade Ukraine under its pretence of a “special military operation”, a situation that has not been helped by subsequent sanctions and more recently bans on Russian oil.

Indeed, JPMorgan Chase chief executive Jamie Dimon has warned that oil prices could soar up to US$175/bbl.

Recession fears could impact on prices

But there’s a surprising dissenting view.

American multinational bank Citi believes that oil is overvalued amidst recession fears.

Its global head of commodity research Ed Morse told Bloomberg that oil should be in the US$70/bbl range rather than the US$120 range.

“If you look at the fair value for oil, look at the flowing curve. It’s exaggerated,” he said.

“We had at the beginning of the year expected there would be around 3.6 million barrels a day of demand increase year over year. We’re now down to 2.2 million barrels a day.

“That’s a big difference if you are pulling on a refining system that is under duress.”

This follows on the World Bank warning that commodity price increases due to the Russia-Ukraine war could mean that a global recession may now be inevitable and the IEA paring back its oil demand forecasts in May.

One thing is clear though, the wild oil rollercoaster ride isn’t ending anytime soon.

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