Will oil markets recover soon?
Why is the upcoming oil price cycle so important to the world?
Partial recovery in oil and the start of fuel demand in Asian markets!
After months of deep and terrifying slipping, demand for fuel around the world began to revive and gradually return to life. Maritime traffic data, pipeline flow, and sales at oil and gas receiving terminals and gas stations in Texas City in San Antonio, Beijing, Barcelona, Tokyo and Singapore appear to indicate that falling demand for oil and fuel may have already reached the bottom.
Analysts so far indicate that the path to a full recovery will be more difficult than exiting an underground pit, as many oil and gas traders expect it may be a year or more before demand actually returns to pre-crisis levels.
Few less optimistic among them believe it might take even longer!
Oil companies, refiners, and oil traders believe the worst thing is actually the falling demand for oil and its derivatives. But the question is how long global oil demand will take to recover to pre-Covid-19 levels — if that is possible.
Current opinion among industry professionals, international organisations, and analysts is that it may take more than a year before oil demand returns to 2019 levels.
Here are early encouraging signs that fuel demand is on the rise, and the industry may have to wait until the end of 2021 to see global oil demand again at 100mn barrels per day (bpd).
Analysts warn that a V-shaped recovery is highly unlikely, with the massive scale of declining demand for crude — estimated at 30mn barrels per day in April — making the road long and difficult until the end of the global crisis to bring demand to a rate of approximately 100mn barrels per day.
Oil experts are seeing a positive forecast about oil price:
Oil prices are getting ready to rise dramatically. "We are going to move from a perception of severe surplus due to the global economic slowdown, to a reality of intermittent and localised shortages. This will be strongly evident by the fourth quarter of this year," an expert said.
Most international oil companies are preparing for the worst case scenario: a non-recovery scenario in full and taking into account a partial recovery.
The prevailing belief among these companies is that such a crisis has the potential to push the management of these companies into a different way of thinking and a new approach to dealing with market conditions in terms of demand.
Worse still, some analysts say demand may never return to these levels this year.
An "L" type economic recovery is expected, which means that oil demand will remain at approximately 9% lower than last year, instead of bouncing sharply or slowly on a "U" path.
While there will be no full recovery in demand for jet fuel (until 2022), forecasts indicate that passenger traffic will remain low. As for demand for auto fuel (gasoline), it will recover towards the end of 2020.
But the International Energy Agency (IEA) seems to be a bit more optimistic.
The energy analyst estimated that May consumption would be 25.8mn barrels lower than this level, while June consumption would be 14.6mn barrels lower than normal. However, the analyst sees December's consumption at only 2.7mn barrels below 2019 levels.
The demand will return. However, it will be a slow journey on the road to recovery. Data indicate that the global demand for oil will continue to grow every year until at least another decade.
However, there are already signs that the worst demand collapse is behind us.
Estimates say oil and gas companies are bracing to lose nearly $1tn in revenue this year.
However, the natural depletion of oil fields will reduce oil supplies and this may lead to price increases to almost $90 a barrel in 2030 and around $103 in 2040.
The Covid-19 pandemic has radically changed the dynamics of the oil and gas market, and we don't know what the energy sector will look like when it's all over.
And we should not be surprised if global consumers, investors and oil producers decide to resort to their investment portfolios and give the sector more time, as most international oil companies have predicted in order to restore its natural stability.
Although oil production began to decline rapidly and decreased the production of Opec/Russia and the Opec alliance and shale oil producers, the demand is recovering from a low base, driven by the revitalisation of the Chinese economy and the impact of transportation demand in developed market economies.
Although oil producers finally agreed to cut production by nearly 10mn barrels per day, the deal will partially support oil prices in the coming weeks, as the agreement, though historic, does not amount to much (to support prices) due to the decline in global demand on oil and need to cut further next July.
So oil prices aren't expected to jump much in the coming weeks, but the rally will still be somewhat gradual over oil demand in 2021.
And the fact that major oil producers and Opec+ will cut production around 8mn barrels due to their collective agreement, including Canada and Mexico due to market conditions, a second reduction agreement will take effect in July.
This is expected to somewhat support the price of oil above $30 a barrel and this would support LNG and petrochemicals portfolios as well.
*Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.
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