Citadel, a hedge fund giant, says that oil markets will become “extremely tight”, in the second half this year. This is because Opec+ has control over the market and can keep prices high.
Sebastian Barrack said that the cartel had “definitely regained the control” over the Oilmarket at the Commodities Summit held in Lausanne, on Monday.
He said that the volume and timing of the supply from its member nations “will determine where prices will go in the coming 12 months”. Citadel was named last year the Most Successful Hedge Fund of All Time, and has made huge profits trading commodities.
Barrack made his comments after Brent crude, which is the international benchmark for oil prices, rose above $90 a barrel last week, for the first since October. This was due to fears that the conflict in the Middle East would worsen.
Brent has risen by 16 percent this year despite a drop of more than 1% on Monday, after Israel announced that it had removed its troops from Khan Younis, in southern Gaza. This eased fears about escalation.
Opec+’s position was strengthened by the “level discipline” that US producers showed, as described by Barrack. They chose not to try and take advantage of high price by increasing production.
He added that if Opec+ decided not to release supply, “we would see a tightness on the market which will be very constricting for the market. High prices will need to go down and help destroy the demand to solve this problem”.
Opec+, despite the vehement US objections, has been voluntarily cutting production since November 2022 in order to increase global oil prices amid weak global demand.
The cuts have reduced crude production by 5.3 million barrels per day or 5% of the global supply. Saudi Arabia has led the move, as it needs a high price of oil to pay for large spending programmes such as new cities and football.
In making these cuts, however, the cartel ceded some market share to producers who are not members, most notably, those from the US and Canada.
Analysts have stated that Opec+ nations will relax their production restrictions in the event that prices exceed $100 per barrel to prevent further erosion of market share.
Barrack warned that the oil market may experience “extraordinary volatility” depending on the actions of the cartel.
Opec+ may decide to tighten the market and increase prices by not doing anything. Opec+ could also misjudge the timing and magnitude of the supply releases. This would lead to higher prices.