At the halfway point in January, the oil price is holding strong and fundamentals are as stable as can be expected.
West Texas Intermediate (WTI) climbed to a 10-month high this week, holding on to the autumn rally and helped by Saudi Arabia’s decision to cut supply last week.
In Friday trading, Brent crude was priced around US$55 with WTI close to US$53 a barrel.
OPEC’s monthly oil market report said it expects global oil demand to increase by 5.9 million barrels a day in the year ahead to average total demand of 95.9 million barrels a day.
Fall in global demand
2020 saw global oil demand down at 90 million barrels a day. China, India and other areas in Asia are expected to be the big drivers of growth as economic activity recovers post-Covid.
Growth in transportation fuels is likely to come from the US later in the year.
OPEC is encouraged that strength will return to the global economy as performance in the fourth quarter was better than expected.
Even though the forecast for growth in 2021 remains low at 4.4%, the report says "recent news of fiscal stimulus in the US and the likelihood of a stronger-than-anticipated recovery in Asian economies provide potential upsides for this year’s growth prospects".
It’s estimated that China’s total oil imports were up by 7% in 2020 to 10.86 million barrels a day.
Imports in December were lower, but the winter has been harsh and demand will continue to rise in the longer term.
OPEC’s monthly report observes "stronger- than-anticipated growth in China amid once-again rising global trade and improving domestic activity in that country".
With oil prices holding steady above US$50, this price range could be seen to be attractive to US shale producers.
Warnings for US producers
A few warnings were targeted at US producers this week, one from the Executive Director of the International Energy Agency, Fatih Birol, who suggested they look at the longer term energy demand and mix, that includes less oil.
He sees a role for American production in the short term, this year and next and said the world "will need oil from the United States to fill the gap", but he cautioned about the shift in transportation away from petroleum to electric powered vehicles that will impact petroleum demand to the downside.
The second warning to US producers “not to flood the market” came from the UAE Minister of energy and infrastructure, Suhail Al Mazrouei, speaking at the on-line Gulf Intelligence conference this week.
While prices may look attractive, demand remains fragile and the minister cautioned that US producers would be wise "not to jump the gun and over produce during the recovery year".
Any additional oil on the market would no doubt dampen prices.
The market likes to consider peak oil demand from time to time and this month delivered analysis from the global consultancy group McKinsey and Company.
The Global Energy Perspective 2021 report says it expects oil to peak in 2029 but gives gas a longer life till 2037.
The report is non-committal in global recovery time for fuel, estimating anything from one to four years, with stronger demand for electricity and gas.
A significant role for the foreseeable
The report concludes that while “fossil fuels continue to play a significant role for the foreseeable future,” the demand for oil will probably never return to its pre-pandemic levels as "the story of the century is still a rapid and continuous shift to lower-carbon energy systems".
Despite mass vaccinations against the corona virus, many countries remain in lockdown.
OPEC’s report says this will continue to add uncertainty to recovery prospects and oil demand projections. But cautious optimism abounds as the world looks forward to a post-pandemic second half of 2021.