Feb 24 (BUS): In July 2020, just a few months after the COVID-19 pandemic began to spiral out of control, Shell CEO Ben van Beurden announced that global oil demand may have passed its peak — and all that. Except for condemning the core business of his company. to the ultimate mystery.
“Demand is going to take a long time to recover if it recovers at all,” he told reporters after the Anglo-Dutch energy company reported a sharp drop in second-quarter profit.
Van Burden was not alone in his gloomy gaze. Like many during the pandemic, what was happening in the fuel markets was unprecedented. Demand fell sharply as people stopped traveling, and the oil industry simply couldn’t cut production fast enough to match it.
Worse, the drop in demand came as Russia and Saudi Arabia, the two most powerful members of the OPEC+ group, entered a supply war that flooded markets.
There was so much oil there was nowhere to put it, and in mid-April 2020, the price of a barrel of WTI fell below zero as sellers had to pay to get rid of it.
But less than two years later, Van Beurden and others’ predictions of oil’s demise seem premature.
Brent crude futures hit $100 a barrel on Wednesday for the first time since 2014 when Russian President Vladimir Putin ordered military operations in Ukraine.
The possibility of the supply conflict stalling added further pace to the rally supported by a demand recovery that has been faster than oil producers can match.
Worldwide oil consumption last year outpaced supplies by about 2.1 million barrels per day, according to the International Energy Agency, and will exceed 2019 levels this year.
Oil suppliers have had to drain stocks to meet demand, and consuming nations are appealing to companies like Shell to explore for more.
The drop in oil prices in early 2020 led to political moves you would not have otherwise imagined.
Donald Trump, the US president at the time, became so concerned about the potential collapse of domestic oil prospectors that Saudi Crown Prince Mohammed bin Salman delivered an ultimatum in a phone call in April: cut production or risk the withdrawal of US forces from the kingdom. .
Investors and government pressure has also mounted on oil producers to cut emissions.
In mid-May 2021, the International Energy Agency said there should be no new funding for major oil and gas projects if the world’s governments hope to prevent the worst effects of global warming.
Transformation policies have resulted in the reluctance of major European oil companies to invest in increased production.
Many OPEC+ members simply did not have the money to maintain the oil fields during the pandemic.
Those with spare capacity such as Saudi Arabia and the UAE are reluctant to bypass OPEC+ agreements for supply quota.
Even the US shale oil industry – the world’s most important swing producer from 2009 through 2014 – has been slow to restore production amid pressure from investors to raise their financial returns rather than spending.
The Biden administration, which wants to combat climate change but also protect consumers from higher pump prices, is now encouraging drilling workers to ramp up activity and calling on OPEC+ to produce more oil.
That could be a struggle, according to Scott Sheffield, CEO of US shale producer Pioneer Natural Resources. He told investors last week that OPEC+ does not have enough spare capacity to handle rising global demand, and that his company will limit production growth to between zero and 5%.
It’s higher prices, not new supply, that ultimately balances the market, said Mike Tran of RBC Capital. “It simply doesn’t get any more hopeful than that,” he wrote in a note this month.
But others believe the show will eventually come. After all, prosperity always comes before collapse.
“We think that $100 crude is bringing all the wrong things in too much supply, too quickly,” said Bob Phillips, CEO of Crestwood Equity, a Houston-based broker-operator. “We don’t think it is sustainable.
FA