Energy Prospectus

From real oil traders

On June 15 Reuters reported the world's biggest oil traders said on Tuesday they see oil prices staying above $70 a barrel with demand expected to return to pre-pandemic levels in the second half of 2022. In a stark reversal, the traders do not discount a return to $100 per barrel oil further ahead.

> Vitol Chief Executive Russell Hardy sees the oil moving between $70 and $80 a barrel for the remainder of 2021 on the expectation that the Organization of the Petroleum Exporting Countries and its allies (OPEC+) keep supply discipline, even as Iran's exports may resume if the United States rejoins a nuclear agreement with Tehran. "Iranian production is probably going to come back at some time during the September to November period. OPEC wants to manage its situation to allow that to happen relatively smoothly...supportive of prices," Hardy told the FT Commodities Global Summit.

> "We're forecasting oil demand to come back to pre-COVID levels by Q3 or Q4 in 2022," Alex Sanna, Glencore's head of oil, told the conference. "We have ample (spare capacity) at the front end, having said that if the Iranian deal doesn't happen and inflationary pressures continue to come, I see flat prices moving up from here."

> Mercuria expects oil demand to be mostly back by the year end at just over 100 million b/d, just shy of pre-COVID levels. "Inventories are back to pre-COVID levels except for China, that still has a buffer...roughly 150 million barrels," said Marco Dunand, CEO of Mercuria Energy Trading.

> Investments to replace depleting oilfields and develop new ones has fallen dramatically in part due to the COVID-19 economic slump as well as the energy transition. "The supply situation is quite concerning. We've gone from 15 years of reserves to 10 years," Trafigura CEO Jeremy Weir said.

> While sky-high oil prices could return, they are not part of a much-hyped commodities super cycle, which the traders see as metals-centric led by the requirements to expand power infrastructure to keep step with the energy transition.

> “Can oil return to over $100 a barrel? Of course it could," Gunvor CEO Torbjorn Tornqvist said. "There's a risk that supplies of hydrocarbons goes down faster than the alternatives are able to make up for. That's the real danger."

B of A Equity Research: Oil May Hit $100 a Barrel Next Year on Demand Rebound
Commodities
Jun 21, 2021 06:36AM ET

(Bloomberg) -- Oil may surge to $100 a barrel next year as travel demand rebounds, Bank of America said, the strongest call yet among major forecasters for a return to triple digits.

Global oil consumption will continue to outstrip supply in 2022 as the economic recovery from the pandemic boosts fuel consumption, while investment in new production is crimped by environmental concerns, the bank said in a report.

“There is plenty of pent-up oil demand ready to be unleashed,” said Francisco Blanch, the bank’s New York-based head of commodities research. Brent futures traded near $74 a barrel on Monday.

While other market-watchers, from trading house Trafigura Group to Goldman Sachs Group, have already said that oil could reach $100 again in the right conditions, the prediction from Bank of America (NYSE:BAC) is the firmest to date.

If crude does return to triple digits, it will be the first time since 2014, before a flood of North American shale oil sent the market into a slump from which it has never fully recovered.

The increasingly bullish outlook for oil is adding to pressure on the OPEC+ coalition led by Saudi Arabia and Russia, which meets next week to consider reviving some more of the production it cut during the pandemic.

While Riyadh has signaled it prefers to move cautiously, an ever-tighter world market could compel the alliance to open the taps a little. Prices have been stoked this month as fellow OPEC member Iran fails to clinch an agreement to relieve U.S. sanctions on its petroleum exports.

Car Travel

According to Bank of America, the immediate prospects for the OPEC+ alliance are bright.

Oil consumption will be bolstered next year as mass transit struggles to keep pace with extra travel demand, prompting passengers to make greater use of private cars.

Even the ongoing popularity of remote working won’t dent fuel consumption as much as expected, as home-workers use cars during the day to run personal errands, the bank said.

“Work-from-home means ‘work-from-car’ in many cases,” Blanch said.

At the same time, the bank expects that new oil supplies will remain constrained. Shareholders will pressure major companies to invest in renewable energy, or push shale drillers to return cash rather than spend on new drilling.

Still, expectations for a tight market in 2022 are far from unanimous. A report from the International Energy Agency earlier this month showed that half of the projected increase in demand can be met by recovering output outside OPEC, predominantly from the U.S.

That would leave the Organization of Petroleum Exporting Countries and its partners with significant quantities of idle output -- and even more if Iran can strike a nuclear accord with the U.S. by then.