By Saad al-Kuwari
* Average prices of $50 and $55 per barrel, respectively, in 2021 and 2022!
* Optimism in the oil market is completely right!
* The recovery in oil demand is inevitably coming!
Qatar International Trade Company for Oil and Gas expects global oil stocks to start declining at a pace of about 2mn barrels per day, starting in July, thanks to reduced closings around the world.
The study also indicates that optimism has returned to the oil markets, where expectations indicate that oil prices for this year and next year will rise as demand recovers from closings related to the coronavirus pandemic, and the deal to reduce Opec+ supply reduction in the market, and producers reduce the capital expenditures associated with oil projects.
Brent crude averaged $43.70 a barrel in 2020, up from a previous estimate of $37 and this reflects optimism in the market.
Qatar International Trade Company for Oil and Gas expects that the average prices of $50 and $55 per barrel in 2021 and 2022 respectively, and this reflects the pattern of declining stocks in most regions as we move to the second half of 2020.
As a result, we expect the curve to return full and Brent crude to climb a little by the end of the year is about $50.
For more than two weeks, oil prices have gathered around the $40 a barrel level, as the worst event of the recent oil price crash appears to be in the rearview mirror.
So far, Opec+ production cuts seem to have gone well with reluctant producers such as Iraq, Kazakhstan, Azerbaijan, Nigeria and Angola, and raise hopes for an actual rebalancing of markets and thus price stability.
It is possible that oil prices exceed $55 a barrel due to a large deficit in 2022 and large capital cuts by producers, for new projects for oil production, decline in shale oil production, depletion and closure of some traditional oil wells.
The price of oil is now turning bullish due to what is seen as “a very large supply and demand deficit coming in the near future” and could appear in 2022.
And this deficit may reach 6.8mn barrels per day (by 2025) if the markets maintain their current path of terms of supply and demand. Qatar Oil and Gas Trading Company predicts that state oil companies need to spend large sums just to maintain production – something that does not happen clearly with global upstream investments that are expected to drop to a 15-year low of $383bn.
We have highlighted how the current level of capital spending is likely to negatively affect production – especially if oil prices remain at these levels for a few more years, ie around $40.
And with oil prices recently falling to multi-year lows and the demand that has severely suppressed the Covid-19 crisis, US shale oil producers have gone into a survival mode and reduced capital expenditures by 2020 by nearly $85bn in an attempt to protect balance sheets, maintain shareholder payments, and maintain liquidity, which means production in shale oil will drop to almost 4mn barrels per day.
According to the study, oil supplies will drop by more than 45mn barrels per day if capital investments are not made in the existing or new fields between 2020 and 2025, until the ongoing investments in the current fields, a decrease is observed and will continue to lead to a decrease of approximately 27.5mn barrels per day during the expected period.
Assuming that after the Covid-19 era, global oil demand fell by 10mn barrels per day, it would still leave 17.5mn barrels per day a huge gap in supply and demand in the coming years.
This indicates that production could be materially affected by the amount of investment at current levels for another three years to come.
Previously, before prices collapsed and as North American oil producers expanded production, prices were likely to remain volatile.
Unlike the national oil companies and major oil companies that usually take five to 10 years to develop conventional oil reserves, these “unconventional” and independent players have improved drilling and cracking technology to the extent that they can respond within months to temporary market hikes or falls.
And recent price volatility highlights a new era of uncertainty sweeping the global energy markets.
Growth in demand at the right price will continue!
Both the Kingdom of Saudi Arabia and Russia will monitor the conflicts in shale oil production, in the hope of obtaining a larger segment of the oil market, but this strategy is not without risks for both party in future, and this will be subject to the extension of the production reduction agreement in force until the end of July.
* Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.
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