Crude oil prices are unlikely to return to three-digit levels ever again, Citigroup commodity analysts said in a note, as quoted by Bloomberg.
The idea of oil at $100 or higher, “has far more fantasy than reality at its heart,” the Citi analysts wrote, adding that over the long term, $45 per barrel of Brent was a far more likely oil price scenario than $60 a barrel.
In more pessimistic news, the Citi analysts said, “Oil product demand growth will falter significantly, change its contours and never return to pre-covid-19 rates of growth.”
They are not alone in this view of oil product demand after the pandemic erased close to a third of global oil demand at its height. This demand has yet to recover, and many doubt it will recover fully to pre-pandemic levels.
Meanwhile, there are threats from supply, too. Saudi Arabia appears to have threatened fellow OPEC members that it will start a price war again if they don’t do more to fall within their production quota under the OPEC+ agreement aiming to remove 9.7 million bpd from the global supply until the end of this month.
Even though OPEC’s production last month fell to the lowest in 30 years, this may not be enough to spur a stronger recovery in oil prices. As a result, OPEC delegates told the Wall Street Journal that the cartel’s leader in all but name had told laggards it would open the taps if they didn’t fall in line.
Speaking of supply, Citi’s analysts noted in their forecast that with lower production costs generally, production would begin returning at levels of about $45 a barrel, which further made strong price rises even in the longer term unlikely.
Meanwhile, oil prices are again on the decline despite EIA’s inventory report, which estimated a sizeable drop in crude oil last week. The decline was driven by rekindled fears of a resurgence in Covid-19 cases, especially in the United States.
By Irina Slav for Oilprice.com
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While oil prices are projected to hit $45-$50 in the second half of this year and touch $60 in early next year, it is becoming increasingly possible that the global oil market could swing into a supply deficit sometime in 2022/23 causing oil prices to climb to $100 or more.
Three major factors could contribute to this impending deficit. The first factor is that the US shale oil industry will be struggling this year and the next three years to maintain a production of even 7 million barrels a day (mbd).
The second factor is China’s unquenchable oil thirst. My projection is that global oil demand will end the year at 98.34 mbd, a mere 3 mbd less than 2019 level of 101.34 mbd. By the end of 2021, global oil demand is projected to more than match 2019 levels.
The third factor is that global energy investments are expected to drop by an “unparalleled” 20% this year according to the International Energy Agency (IEA). The pandemic has also forced the global oil industry to defer as much as $131 billion worth of oil and gas projects slated for approval in 2020.
As a result there could be a supply shortage of 10-15 mbd in the next 2-3 years sending oil prices rocketing above $100.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Get the wars in Libya, or Syria spreading, and oil could get cut off from the Middle East, with oil hitting $250 a barrel in 3 months. Without the US acting as global policeman, it is just a matter of time before another World War begins somewhere, somehow. Too few people realize that war is the natural condition of man, not peace. Study history, it isn't about peace.