Oil prices are on the upswing and they may be poised to breach the $100 mark as concerns mount over supply and geopolitical tensions.

In a note circulated to clients on Monday, analysts from investment bank Goldman Sachs cautioned them to expect oil prices to go over $100 per barrier in the coming months. The analysts described the present situation for the oil market as stuck in a "surprisingly large deficit" where anticipated demand shocks did not materialize as previously feared.

It was initially feared that the Omicron variant of COVID-19 would cut into demand for oil because of the infectiousness of the new strain. The haymaker Omicron was expected to deliver did not come to pass and any damage was expected to be mitigated by an oil for gas substitution scheme.

But this was not the only factor. Supply shortfalls from major producers like OPEC have failed to reduce the amount of aggregate supply for the global market and production by other oil-rich nations has failed to narrow this gap. In their estimate, global oil demand is seen rising 3.5 million barrels per day (BPD) year on year in 2022 with demand reaching 101.6 million BPD by the fourth quarter if production from major producers fails to pick up, which they anticipate being the case.

"We expect the increase in OPEC+ production to fall even further short of quotas in 2022, with an only 2.5 million bpd increase in production expected from the next nine hikes,” wrote the analysts, referring to the expanded OPEC format that includes outside producers like Russia.

This prediction has received credence in the last week. On Jan. 17, Saudi Arabia's Energy Minister stated that the kingdom had no plans to pump more crude to make up for any other production shortfalls from other countries under an earlier deal struck by OPEC+ members. A day later, analysts warned that Russia, a key player in the oil market, may prove incapable of meeting its quota of 100,000 BPD.

Geopolitical tensions are also a factor weighing on the global oil market. A recent drone attack on an oil facility in the United Arab Emirates (UAE) and concerns that Russia will invade Ukraine in the coming weeks have sparked fears of a shock to oil supplies that will push up prices further.

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