The oil industry is "massively underinvesting" in supply to meet growing demand, which is set to return to pre-COVID levels as soon as the end of 2021 or early 2022, Greg Hill, president of U.S. oil producer Hess Corp, said on Monday.
In the short term, oil prices will be supported by tightening markets with supply struggling to catch up with demand, Hill said, as carried by Reuters.
Oil demand worldwide is expected to hit 100 million barrels per day (bpd) by the end of this year or in early 2022, Hill said, adding that demand next year is set to rise to 102 million bpd-exceeding pre-pandemic levels. Currently, global oil demand is around 98 million bpd, Hess Corp's executive said.
Going forward, the biggest wildcard on the oil market will be underinvestment in new supply, Hill said.
Last year, global upstream investment sank to a 15-year low of $350 billion, down from around $600 billion before the pandemic, according to estimates by Wood Mackenzie from earlier this year.
"There's little evidence yet of upstream investment perking up from a 15-year low, even in the price-sensitive US Lower 48 tight oil plays. The mood will change if prices remain at these higher levels well into 2022 and show signs of sustained recovery," WoodMac's Macro Oils team said in June.
"So that tells me the industry is massively underinvesting to meet future supply," Hess Corp's president Hill told Reuters in an interview.
Apart from underinvestment in new oil supply, the other wild cards in the market right now are inflation and the possible return of Iranian barrels, according to Hill.
Hess Corp is not the only U.S. oil producer expecting tight markets and robust demand in the short term.
Last week, ConocoPhillips' chief executive Ryan Lance said that crude oil demand would bounce back to levels from before the Covid-19 pandemic by early 2022.
"We see the demand improving, we see probably getting back to pre-pandemic levels by the end of fourth quarter or the first quarter of next year and the market getting relatively balanced," Lance told Bloomberg, adding that meanwhile, supply would remain constrained.
By Tsvetana Paraskova for Oilprice.com
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