The Oil journey worthless during Covid-19 to $100 a barrel

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The Oil journey worthless during Covid-19 to $100 a barrel

Feb 24 (Reuters) – In July 2020, just a few months after the COVID-19 pandemic started to spiral out of control, Shell CEO Ben van Beurden declared world oil demand may have passed its peak – all but condemning his company’s core business to eventual obscurity.

“Demand will take a long time to recover if it recovers at all,” he told reporters after the Anglo-Dutch energy company reported a sharp drop in second-quarter profit.

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Van Beurden wasn’t alone in his gloomy view. Like much else during the pandemic, what was happening in fuel markets was unprecedented. Demand had fallen so sharply as people stopped travelling, the oil industry simply couldn’t cut production fast enough to match it.

Worse, the fall in demand came as Russia and Saudi Arabia – the two most powerful members of the OPEC+ group – were locked in a supply war that flooded markets.

There was so much oil there was nowhere to put it, and in mid-April 2020 the price of a barrel of West Texas crude went below $0 as sellers had to pay get rid of it.

But less than two years later, the predictions of Van Beurden and others about oil’s demise look premature.

Benchmark Brent crude futures hit $100 a barrel on Wednesday for the first time since 2014 as Russian President Vladimir Putin ordered military operations in Ukraine. The potential for conflict to interrupt supply added more pace to a rally underpinned by a recovery in demand that has been faster than oil producers can match.

Oil suppliers had to drain inventories to meet demand, and consumer nations are pleading for companies like Shell to drill more.

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“If you go back to the days of whale oil, oil has been a story of boom and bust,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “It’s a peak-to-valley cycle and usually when you hit the valley, get ready because the peak isn’t that far ahead.”

POLICY POWER

The Oil journey worthless during Covid-19 to $100 a barrel

The politics of the transition have made European oil majors reluctant to invest in increasing production, so their typical reaction to higher prices – to pump more – has been slower than it might otherwise have been.

Several OPEC+ members simply didn’t have the cash to maintain oilfields during the pandemic as their economies crashed, and now cannot increase output until costly and time-consuming work is completed.

Those with spare capacity such as Saudi Arabia and the United Arab Emirates are reluctant to overstep their OPEC+ supply share agreements.

The Biden Administration, which wants to fight climate change but also protect consumers from high pump prices, is now encouraging drillers to boost activity and calling for OPEC+ to produce more oil. So is the IEA.

That could be a struggle, according to Scott Sheffield, CEO of U.S. shale producer Pioneer Natural Resources. He told investors last week that OPEC+ does not have enough spare capacity to handle rising world demand, and that his own company would limit production growth to between zero and 5%.

RBC Capital’s Mike Tran said it will be high prices, not new supply, that ultimately balances the market. “It simply does not get more bullish than that,” he wrote in a note this month.

“We think $100 crude brings in all the wrong things – too much supply, too fast,” said Bob Phillips, CEO of Crestwood Equity, a midstream operator based in Houston. “We don’t think it’s sustainable.”

Analysis: Oil’s journey from worthless in the pandemic to $100 a barrel  ReutersAnalysis: Oil’s journey from worthless in the pandemic to $100 a barrel  ReutersRead More“when:24h allinurl:reuters.com” – Google News


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