SINGAPORE – OPEC oil producer group left unchanged the forecast for growth in crude oil demand in 2021 in relation to expectations of economic recovery. But that could change, warns energy expert Dan Yergin.
Yergin, vice president of IHS Markit, told CNBC on Friday that it depends on the effectiveness of coronavirus vaccines and whether the number of Covid-19 cases continues to rise.
Expectations for rising oil demand also rose Thursday when U.S. President-elect Joe Biden launched a $ 1.9 trillion Covid-19 bailout package designed to support households and companies.
In addition to the stimulus package, two factors have also fueled optimism, Yergin said. “There are two more things that go with it … one is, of course, vaccinations, in the sense that finally this crisis will end and maybe in the spring, the closures will end.”
“The other thing is what Saudi Arabia did. This is the third time that Saudi Arabia is making a sudden policy change in less than a year, and this one had to announce the reduction of one million. of barrels daily, in part because they are concerned about the impact of the rising virus that is occurring, ”he said.
If vaccines were not as effective as thought, it would have weaker demand again and this would have a higher price.
And Yergin
Vice President, IHS Markit
OPEC members and their non-OPEC allies, an alliance called OPEC +, reduced oil production by a record amount in 2020. They did so in an effort to support prices, already that Covid-19 restrictions around the world and the subsequent drop in air travel to a fuel demand shock.
Since then, Saudi Arabia, the world’s largest oil exporter, has said it plans to reduce production by an additional 1 million barrels a day in February and March to prevent stockpiling.
Yergin said both the vaccine launch and supply cuts have come together to “get oil prices out of what I called the virus alley and wanted to recover in 2021.”
Coronavirus risks
Oil prices are currently at the pace of their third consecutive week of gains. U.S. crude traded at $ 53.08 on Friday during the Asian period, above $ 48 a barrel in late December, while Brent crude was at $ 55.69 on Friday, in compared to the final $ 51 in December.
OPEC said it expected global oil demand by 2021 to increase by 5.9 million barrels a day year-on-year to an average of 95.9 million barrels a day. The forecast did not change with respect to last month’s valuation.
In a report on Thursday, it was stated that its forecast for 2021 means “a healthy recovery in economic activities, including industrial production, an improvement in the labor market and higher vehicle sales than in 2020”.
Yergin, however, warned that demand for oil would depend on how the virus situation developed.
If the coronavirus rise continues and “if vaccines weren’t as effective as thought, it would have weaker demand again and that would show up in price,” he told CNBC’s “Squawk Box Asia” on Friday. “But it is clear that there is optimism in the price of oil.”
“Second Revolution” for American shales
The time has come for the “second revolution” for American shale producers, Yergin said. The drilling boom in the industry had catapulted America to the position of the world’s largest oil producer in 2018.
“This is the second shale revolution, which is about returning money to investors. (They are) in a better position to do so. Now you will see consolidation, you will see continued efforts to lower the cost.” He said.
“So I think we’ll see that the American shale will start to rise again in production during the second half of this year,” he said, adding the warning that there are no negative coronavirus scenarios.
However, it is not yet clear what Biden’s energy policies could mean for the US shale industry.
In December, U.S. Secretary of Energy Dan Brouillette warned that U.S. slate producers should be concerned about a “very aggressive” climate policy that will succeed the Biden administration.
Biden may not ban fracking, the process of extracting fossil fuels through which shale gas is produced, but it would seek to stifle it significantly with regulation, many analysts say.
– CNBC’s Sam Meredith, Natasha Turak and Patti Domm contributed to this report.