The combination of increased demand and supply cuts from heavyweight crude producers has pushed oil prices close to $100 per barrel. However, some analysts are questioning the sustainability of these prices in the long term, citing potential demand destruction. Despite this, European refiners and traders believe they can weather the storm of high prices without reducing output, thanks to favorable refinery margins. Additionally, uncertainty over China’s fuel export quotas and Russia’s ban on fuel exports due to sanctions have tightened supplies of refined products, potentially worsening global diesel shortages.
The rise in oil prices is largely due to voluntary production cuts by some OPEC+ members and additional reductions by Saudi Arabia and Russia. These cuts, along with improving Chinese demand and inventory drops, have contributed to the price support. Nevertheless, some experts warn that economic fragility and seasonal demand drops in the first quarter could make high oil prices unsustainable in the long term. Some European market participants doubt that triple-digit oil prices can be sustained, with concerns over potential demand destruction if prices reach $110 per barrel.
The possibility of a high-impact hurricane event this year potentially disrupting crude oil production and refining capacity adds further uncertainty to the oil market. However, favorable refining margins and strong demand during Thanksgiving and winter vacations in the US and Europe could help support refined oil product demand in the West. Despite these factors, some European market participants remain skeptical about the long-term sustainability of high oil prices and point to possible demand destruction as customers may reduce purchases in response. The White House, which has previously called on OPEC+ producers to increase output, has not responded to the recent production declines. Experts argue that the US has limited options to bring prices down further and that an energy component in a potential US-Saudi deal remains uncertain.