Oil prices are unlikely to soar much above the $60 per barrel mark, considering that this price level would incentivize a lot of oil supply, including from the United States, Torbjörn Törnqvist, chief executive at one of the world's largest independent oil traders, Gunvor, told Bloomberg on Friday.
"Once you hit $60 a barrel, any oil production out there is profitable, and the incentive for oil producers to hold back erodes real fast," Törnqvist told Bloomberg in an email.
Brent Crude prices were cents away from reaching $60 early on Friday, after a strong rally this week, driven by the ongoing production cuts from OPEC+, the extra million-barrel-per-day reduction in Saudi Arabia's output, strong Asian demand, and risk appetite on the markets.
Yet, according to Gunvor's chief executive, these gains will be capped, especially in the first half of this year.
"The high-$50s are the higher end of our expectation for the first half, and we're not sure we will see much higher," Törnqvist told Bloomberg.
Global demand for oil products right now is still lagging behind the levels from just before the pandemic and is up to 5 million barrels per day lower than at the start of 2020, the executive said.
China is a strong driver of demand, while Europe is the worst-hit market. The U.S. is more stable than Europe with just "a couple million barrels loss in demand," according to Törnqvist.
At the start of this week, Goldman Sachs issued another bullish message for oil markets, saying in a note that it expected global oil demand to recover to pre-pandemic levels of 100 million bpd by August this year. According to Goldman, the oil market was in a deficit of 2.3 million bpd in the final quarter of 2020. With supply still tight at the start of 2021, the immediate future for prices is bright despite expectations for a slow demand recovery.
By Tsvetana Paraskova for Oilprice.com
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Comments
I have been for quite a long time projecting that Brent crude price is heading towards $60 a barrel in the first quarter of 2021 rising further to $70-$80 in the third quarter and averaging $60-$65 in 2021. Moreover, Global oil demand is projected to recover to pre-pandemic level of 101 million barrels a day (mbd) by the middle of 2021.
But I based my projections on improving fundamentals in the global oil market, almost 100% compliance by OPEC+ members with the agreed production cuts, an expanding global rollout vaccination and accelerating depletion of global oil inventories in addition to growing demand for refined products in the United States and record-breaking crude oil imports by both China and India.
It is no good for Gunvor’s chief executive, to say that once the oil price hits $60, the incentive for oil producers to hold back erodes real fast. This is a fact of life. But with the global oil industry delaying (probably indefinitely) $131 bn of oil and gas projects that were slated for approval in 2020, crude oil prices could be headed towards $100 by the end of 2022 and 2023 because of global oil supply deficit that could hit 15 mbd.
Furthermore, if Brent crude is going to hit $60 any moment now despite the fact that the bulk of the global economy is still in lockdown, it will certainly rise to $80 this year with the widening of the global rollout of vaccines.
High oil prices invigorate the global economy by stimulating the three biggest chunks that make up the global economy, namely, global investments, the economies of the oil-producing countries and the global oil industry thus creating more demand for oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London