The short-term prognosis for crude oil looks exciting. But that may be a mirage.
The approaching summer driving season in the Northern Hemisphere and the lifting of COVID-19 restrictions have stimulated demand.
The Organization of Petroleum Exporting Countries (OPEC) and its allies in the expanded OPEC+ appear confident that with the accelerating vaccination programs and the opening of economies, global oil demand will rise by 5.95 million barrels per day (bpd) this year, despite the devastating COVID crisis in India.
World oil demand is set to average 96.5 million bpd in 2021, OPEC said in its latest Monthly Oil Market Report. This would be nearly six million bpd higher than when the pandemic hit demand in 2020. Global oil demand is projected to accelerate in the second half of 2021, with the outlook for the third and fourth quarters of 2021 set to go up by 150,000 bpd and 290,000 bpd, respectively.
The International Energy Agency (IEA) is also sensing light at the end of the tunnel. In its April report, the IEA projected world oil demand will expand by 5.7 million bpd in 2021 to 96.7 million bpd, following the collapse of 8.7 million bpd in demand last year.
Driven by a more broad-based pickup in global economic activity amid widening vaccination rollouts, Goldman Sachs now expects Brent crude to hit US$80 a barrel going ahead. S&P Global Platts also forecasts oil prices to hit and stay above US$70 a barrel by mid-2021.
As OPEC prepares for its ministerial meeting on Tuesday, it remains fully cognizant of the improving sentiments. A ramp-up of output seems plausible and possible. But the real question is: to what extent?
Analysts and traders told Reuters that they expect the OPEC+ to add over 1.5 million bpd of crude by July, in addition to the 600,000 already added by those countries in May. This is despite the collapsing demand outlook in India – the world’s third-largest oil consumer – and the looming return of Iranian oil to the market sometime later this year.
But the longer picture is a cause of concern. Several variables are in play. Some analysts say we reached peak world oil demand in 2019. Despite improving consumption, projections for 2021 are still below 2019 pre-pandemic levels. So the focus remains on the consumption patterns in coming years.
Alternative energy and the rising calls for the world to overcome its reliance on fossil fuels seem to be gaining currency. Even the IEA has joined the chorus, saying last week that the world needs to stop developing new oil, gas and coal fields today or face a dangerous rise in global temperatures.
Abandoning fossil fuels has become a rallying cry. Shell, one of the world’s largest oil companies, has been forced by a Dutch court to cut its emissions much faster than originally planned: 45 per cent by 2030, with the court arguing that the company’s decarbonization targets were incompatible with the Paris climate agreement.
Shareholders of two other oil majors, Exxon and Chevron, are pressing their boards for faster responses to the climate emergency rather than merely greenwashing. The Dutch court decision will provide impetus to their demands.
In Australia, a court ruled the state has a duty to protect younger generations from a climate emergency.
The energy world is taking note.
Many feel carbon capture technology remains indispensable in bridging the energy transition from fossil fuels to renewables. Derek Evans, CEO of MEG Energy, told Global News that carbon capture and storage could effectively erase the emissions from its Christina Lake oil facility, south of Fort McMurray. He said the project could sequester emissions from other nearby oil facilities as well.
So ultimately, the longer-term oil market prognosis remains dismaying.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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