SINGAPORE – OPEC oil producer group has left the forecast for crude oil demand unchanged in 2021, in anticipation of an economic recovery. But that could change, warns energy expert Dan Yergin.
Yergin, vice president of IHS Markit, told CNBC on Friday that much depends on the effectiveness of coronavirus vaccines and whether the number of Covid-19 cases continues to rise.
Expectations of rising oil demand were also raised on Thursday when US President-elect Joe Biden launched a major $ 1.9 trillion Covid-19 rescue package designed to support households and businesses.
In addition to the stimulus package, two factors fueled optimism, Yergin said. “There are two other things that go with it … one is, of course, vaccinations – in the sense that eventually this crisis will end, and probably by spring, the blockages will be over.”
“The other thing is what Saudi Arabia has done. This is the third time Saudi Arabia has made a sudden policy change in less than a year, and it was to announce (reduce) 1 million barrels a day – partly because I am concerned about the impact of the growing virus. ” he said.
If vaccines were not as effective as previously thought, then you would return to a weaker demand, and this would come at a price.
And Yergin
Vice President, IHS Markit
OPEC members and their non-OPEC allies, an alliance called OPEC +, have reduced record oil production by 2020. They have done so in an effort to boost prices, as global Covid-19 restrictions and the subsequent sinking of air travel have to a shock of fuel demand.
Saudi Arabia, the world’s largest oil exporter, has since said it plans to cut production by another 1 million barrels a day in February and March to stop stockpiling.
Yergin said both the launch of the vaccine and the reduction in supplies came together to “get oil prices out of what I called the virus alley and seek to recover in 2021.”
Coronavirus risks
Oil prices are currently up for the third week in a row. US crude oil was at $ 53.08 on Friday during the Asian period, up more than $ 48 a barrel at the end of December, while Brent crude oil was at $ 55.69 on Friday, compared to more than $ 51 at the end December.
OPEC said global oil demand in 2021 was expected to grow by 5.9 million barrels per day year-on-year to 95.9 million barrels per day. The forecast was unchanged from last month’s assessment.
In a report on Thursday, he said his 2021 forecast calls for “a healthy recovery in economic activity, including industrial production, an improved labor market and higher vehicle sales than in 2020”.
However, Yergin warned that oil demand will depend on how the virus develops.
If coronavirus growth continues and “if vaccines were not as effective as previously thought, then you would return to lower demand and this would come at a price,” he told Squawk Box Asia on Friday. CNBC “But clearly there is optimism in the price of oil.”
The “second revolution” for the US shale
The time has come for the “second revolution” for American shale producers, Yergin said. The drilling boom of the industry has catapulted America into the position of the largest oil producer in the world in 2018.
“This is the second revolution for shale, which is to give money back to investors. (They are) in a better shape to do this. Now you will see consolidation, you will see continued efforts to reduce costs,” he said.
“So I think we will see that the US shale will start slipping back into production in the second half of this year,” he said, adding the warning that there are no negative coronavirus scenarios.
However, it is not yet clear what Biden’s energy policies could mean for the American shale industry.
In December, US Secretary of Energy Dan Brouillette warned that US shale producers should be concerned about a “very aggressive” climate policy that will happen to the new Biden administration.
Biden may not ban fracking, the process of extracting shale fuel that produces shale gas – but it would aim to stifle it significantly through regulation, many analysts say.
– Sam Meredith, Natasha Turak and Patti Domm of CNBC contributed to this report.