Opinion remains divided but, to be fair, the crude oil market is not out of woods.
Fatih Birol, the executive director of the International Energy Agency, is endeavouring to take a positive posture. Politically, he needs to stay positive.
Global oil demand is likely to recover to above pre-pandemic levels, Birol said on July 6. “If oil demand goes back to 100 million barrels per day (bpd), I would not be surprised. And under a strong recovery, I would not be surprised if it went (even) higher than that,” Birol underlined.
In its recent Short-Term Energy Outlook, the U.S. Energy Information Administration (EIA) also raised its forecasts for the U.S. and global benchmark oil prices, and for U.S. crude production for this year and the next. (All prices in U.S. dollars.)
The EIA lifted its 2020 West Texas Intermediate crude forecast to $37.55 a barrel, up 6.9 per cent from the June forecast. It also expects 2021 prices to average $45.70 in 2021, up 4.1 per cent from the previous forecast. For Brent crude, it raised this year’s forecast by 6.5 per cent to $40.50 and next year’s forecast by 3.8 per cent to $49.70.
Deloitte also says prices will go up next year and the following two years, as demand continues to recover. Deloitte sees Brent crude prices averaging $39 a barrel in 2020, but rising to average $46.50 next year and $64 per barrel in 2023.
Goldman Sachs also expects prices to rise in 2021, although its short-term forecast stays at $35 a barrel.
Amin Nasser, the CEO of the world’s largest oil company, Saudi Aramco, believes the worst in the market is over, emphasizing he’s “very optimistic” for the second half of this year.
But this is just one side of the story. In the overall analysis, the picture doesn’t look so rosy. Question marks cloud projections.
Most European oil giants are slashing their oil price forecasts.
Italy’s Eni lowered its long-term oil price assumptions last week, saying the COVID-19 pandemic would have “an enduring impact.” Eni now forecasts Brent crude prices at $60 a barrel in 2023, compared to its previous assumption of $70 a barrel. For the years 2020 through 2022, Brent prices are projected at $40, $48 and $55 per barrel, respectively, compared to the previous assumptions of $45, $55 and $70 a barrel.
Last month, the British oil major BP warned of post-tax impairments and writeoffs in the range of $13 billion to $17.5 billion. It projects the long-term average price for Brent crude to be $55 per barrel between 2021 and 2050.
Earlier, Shell said it could take as much as $22 billion in post-tax impairment charges for the second quarter. It cut its Brent crude forecast from $60 per barrel to $35 for this year. It also lowered its 2021 and 2022 forecasts to $40 and $50 per barrel, respectively, down from $60 previously.
Citigroup is of the view that demand growth for refined oil products will never return to the pre-pandemic levels, underlining that oil is more likely to be at $45 than $60 a barrel in the long-term.
So despite some optimistic projections, a return to $100 crude oil seems unlikely.
The crude oil market of tomorrow will definitely be different from that of yesterday. The issue is: to what extent will the contours of the crude world shift tomorrow?
The picture remains dismal, if not abject.
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.