Stephanie Kelly and Noah Browning by Sabrina Valle

NEW YORK (Reuters). Whether the price of fuel pumps falls in 2022 is dependent on two groups: OPEC, its allies, and U.S. shale producers.

Globally, rising oil prices and increasing inflationary pressures have resulted from the insufficient response of the global oil sector to the surging 2021 demand. The global oil market is almost back to its pre-pandemic level as economies recover and more people travel by road, rail, or air.

So, to maintain demand and supply, oil is being burned in excess.

The benchmark oil price has risen to multi-year records of $86 per barrel. Economists also warn that crude may surpass $100 per barrel. This could threaten 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. The energy watchdog predicts that the oversupply will rise to 2.2million bpd by the end of the second quarter.

OPEC and its associates will increase output by 400,000 bpd each month as OPEC+ gradually unwinds the cuts it made during the pandemic.

However, Tuesday’s IEA monthly report revealed that OPEC+ has not met its target: it produced approximately 700,000. barrels per hour (bpd) less than the September and October levels. This is due in large part to the decline of output from top African producers Angola and Nigeria, which are facing investment and maintenance problems that will likely impact next year.

Underproduction could cause a significant reduction in surplus production and tighten markets for a longer time. The IEA increased its 2022 price projection for oil to $79.40 a barrel, despite the fact that it suggested higher production could offer some respite.

Trafigura, a commodities trading company, warned Tuesday that there would be a tight market for oil. This is partly because of declining production investments and the industry’s transition to cleaner energy.

The United States and large energy consumers in the United States have asked OPEC+ for a faster increase in output, but they refused because of concerns that coronavirus could again reduce demand during winter.

Now, the market looks to the U.S. shale sector for the majority of non-OPEC production growth over the last decade.

Marco Dunand from Mercuria Energy Trading said, “There is one thing where you can probably increase capacity. That’s shale.

The IEA anticipates a huge 480,000 bpd growth in liquids (NGLs), and 1.1 Million bpd overall for 2022.

U.S. Energy Information Administration is less optimistic about the near future, expecting overall crude and NGLs to grow by 220,00 in the second-quarter. EIA predicts that the U.S. will see an increase in output in the second quarter of 2022. This would result in a 1.25million bpd rise in crude oil and NGLs.

However, producers of shale have responded slower to price increases than they did in the past. Shareholders and investors have demanded more capital discipline in the industry than during boom-bust cycles. They are penalizing firms that invest in excess capacity, while rewarding those who pay dividends or reduce their debt.

Jeffrey Currie, Goldman Sachs’ (NYSE:) global head for commodities research, stated, “We are at $83 a gallon on oil, but we don’t see any big surge in rig counts,” at the Reuters summit.

Some say that the shortage of labor in the Shale industry is a problem, and others claim that demand for the sector’s recovery from the recession-induced pandemic remains too low to increase production.

In a recent earnings conference, William Berry (CEO at Continental Resources) stated that “it’s still quite fragile.” “It’s not appropriate for anybody in the industry that overproduces into this potentially fragile, oversupplied marketplace.”

LATAM, CANADA RAISE OUTPUT

Non-OPEC Latin American producers have been increasing production. Guyana, an emerging player on the world oil stage is expected to begin production of 220,000 bpd at Exxon’s floating production system in early 2019.

Brazil’s Petroleo Brasileiro SA, the state-run Petroleo Brasileiro SA, is increasing production of its floating platform Carioca at 180,000 bpd. It was launched in August at Sepia Deep-Water Field in Santos Basin.

Venezuela’s exports have increased after it received Iranian condensate. However, it is not clear if this can continue, according to Francisco Monaldi (director of the Latin American Energy Program at Rice University’s Baker Institute).

According to Ann-Louise Hittle (Vice President at Wood Mackenzie), the Canadian supply may rise by approximately 100,000 barrels per day in the first quarter. However, oil companies located in the fourth largest producer in the world are also restrainting their output.

Hittle stated that total oil supply will reach 99.8million barrels per day in the first quarter (2022), surpassing demand of 98.9million bpd.

FGE Energy Consulting warned however that market demand and supply balances may take a while to change, with inventories of developed countries at six-year highs.

“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.