During the past week, the price of BRENT oil rose from about $ 59.34 per barrel at the end of the trading day on 5/2/2021 to about $ 62.85 per barrel at the end of the trading day on 12/2/2021 and the price of a WTI barrel rose from about $ 56.85 per barrel at the end. Trading on 5/2/2021 at approximately $ 59.47 per barrel at the end of the trading day on 12/2/2021. This increase occurred against the background of a continued cut in OPEC +’s oil production along with a decrease in world oil inventories.
Global supply
OPEC’s oil production in January rose 180,000 barrels a day and the group generated about 25.5 million barrels a day. Saudi Arabia’s oil production and the UAE rose and at the same time Iraq’s and Nigeria’s oil production declined after failing to meet previous production quotas. However, Iraq’s decline in Iraq’s oil production was relatively minor in that it pledged to compensate the group for non-compliance with production quotas.
OPEC’s oil production is expected to decline in February, due to pressure from Saudi Arabia on other members to comply with production quotas and a strike by security workers at one of Libya’s oil export ports disrupting Libyan oil exports. However, oil production in most OPEC member countries is expected to rise until production quotas are exhausted, due to rising oil prices.
The Iraqi oil minister estimates that the OPEC + group will not change its oil production quota policy at their expected meeting in early March and he said again that Iraq will compensate for non-compliance with production quotas despite its precarious economic situation. This promise comes after in early 2021 Iraq did not meet the reduction in production it promised. According to the Iraqi oil minister, Saudi Arabia will stop reducing its oil production in April after it voluntarily reduced it by a million barrels a day, amid rising oil prices.
Iraq estimates that the price of oil this year will be about $ 58-63 per barrel and Iraq’s oil exports in 2021 will be 2.9 million barrels per day. Also, if Kurdistan’s autonomous region complies with OPEC +’s production quotas, Iraq’s oil production this year will be 3.6 million barrels per day.
Tensions between the Norwegian Oil Workers ‘Union and employers have intensified amid workers’ demands for a wage agreement, and the union has threatened that if no agreement is reached then it will shut down 12 refineries. This move could have a significant negative impact on Norway’s oil production.
U.S. oil inventories continued to decline in the week ending 2/2/2021, despite an increase in net oil imports. Accordingly, the EIA (U.S. Energy Agency) weekly oil report indicates a decrease of approx. 6.6 million barrels in commercial inventory in the week ending 2/2/2021. The decrease in oil inventory occurred due to an increase in the refinery activity rate to about 83.0% and despite the small increase in net oil imports, which was due to a decrease of 650,000 barrels per day in gross imports compared to a decrease. Exports in 866,000 barrels of oil per day.
Global demand side
U.S. fuel demand remained below 8 million barrels a week for the third week in a row, with the cold winter season coupled with the spread of the virus causing people to stay at home. For example, in San Francisco, road traffic slowed in January and indicates California’s efforts to curb the spread The virus, which encourages people to reduce travel and makes it difficult to recover the demand for fuels.
The US fuel inventory is at its highest level since June 2020, after rising 4.3 million barrels to 256.4 million barrels in the week ending February 5. This is the third week in a row that inventories have grown by more than 2 million barrels. It is also due to the fact that the refineries are preparing for the demand that is expected to be higher in the spring and summer, so that they produce fuels to a greater extent than the demand of this season.
China’s oil imports in January point to an increase in the activity of Chinese refineries. The number of ships carrying huge oil tankers sailing to China rose to 127 in the first weekend of February, the highest number in the last six months, carrying about 250 million barrels of oil, which indicates that China, which is the world’s largest oil importer, is preparing to increase oil inventories. its. The last time the number of ships was higher was due to the drop in the price of WTI oil to a negative price.
The increase in demand for raw materials from plastics and fuel producers in China is expected to raise the price of light oil in Asia. Demand for naphtha has risen due to the return of demand from major petrochemicals in South Korea and the demand from fuel manufacturers stems from a shift in preferences of passengers who prefer traveling by private car over using public transport following the re-spread of the virus and fear of people getting infected.
The number of large oil tankers (VLCCs) used to store offshore oil fell in the first week of February at 5 to 39. During this period, the amount of oil held at sea without the ship moving for at least seven days decreased by 22% to 88.75 million barrels, compared to 113.37 million barrels held at sea at the end of January.
The natural gas economy
The price of natural gas in the US (Henry Hub) dropped slightly last week, to $ 2.87 per MMBTU, but remains in a high price environment. This price environment is due to the increase in demand for natural gas for domestic heating and industrial spaces which is expected to remain high in the near future. Expect a cold wave in the US with an emphasis on the Gulf of Mexico alongside a decline in inventories. A combination of these two factors is expected to maintain the high price environment and the price of natural gas is even expected to rise to $ 3 per MMBTU.
The EIA estimates that underground natural gas inventories continued to decline in the week ending February 5 and fell by 171 BCF to 2,518 TCF, but remained high relative to normal levels during this period. The EIA predicts that inventory will continue to decline during the winter season and will reach 1.8 TCF at the end of March which is the normal environment of inventory.
In addition, the EIA has raised its U.S. natural gas production forecast for the next two years so that by 2021, U.S. natural gas production will rise by 2.42 BCF per day to 98.34 BCF per day and in 2022 by 1.31 BCF per day to 98.93 BCF for the day. The upward revision of the forecast stems from the expectation of increased natural gas production in the Permian Basin, which may lead to a decrease in the price of natural gas later this year.
The Texas energy regulator is taking a critical, uncharacteristic approach to burning natural gas surpluses and has rejected a number of petitions by oil companies on the issue, which is a sign of pressure from environmentalists and investors to curb pollution in the region.
Biden Government Policy for Green Energy
One of the first actions of the Biden administration was the revocation of permits for Phase Four of the Keystone (XL) pipeline carrying oil from Canada to Oklahoma. In doing so, the President of the United States began to realize his intention to focus on the implementation of the policy he promised in favor of green energy and against polluting energy, with the main goal being a gradual reduction of carbon emissions. US economy by 2050. Achieving this goal requires a massive shift to green energy use and the use of new technologies, compared to current energy sources that rely on burning oil, coal and natural gas.
This policy may even lead to the disappearance of jobs in the traditional energy sector and an increase in the number of jobs in the green energy sector. According to estimates by researchers at Princeton University in the US, the number of jobs to be added will be higher than the jobs the economy will lose, so beyond green energy it will add jobs to the US economy.
However, replacing traditional energy jobs with green energy jobs is likely to face difficulties in manpower availability and eligibility and may increase unemployment in some areas where there are today a large number of traditional energy jobs due to large job losses in the same area and non-establishment of alternative jobs.
This is because it is not necessarily possible to create the jobs of green energy in those areas where there are the jobs in the field of traditional energy. For example, solar farms and wind turbines do not work everywhere in the same way. Also, the skills that workers develop in the traditional energy industry do not necessarily match the skills required for green energy jobs and massive professional training programs will be needed to convert a large amount of workers so that this policy does not encounter manpower barriers.
Expect medium-term
Adherence to production quotas of most OPEC + members along with voluntary cuts in Saudi Arabia’s oil production are expected to increase the oil market deficit in the first quarter of the year and reduce global oil inventories. If Saudi Arabia and the rest of OPEC + continue to comply with quotas, both formal and voluntary, this will allow a supply level that supports the current price level. In particular, in light of the policy of the new US administration which is expected to act against the expansion of oil production activities during the years 2021-2022.
The decrease in oil inventories, as reflected in the decrease in the “number of inventory days”, indicates a tightening of the market which may even intensify with the increase in demand after easing the restrictions imposed on China, Japan and European countries, and is expected to support high oil prices. Rising prices to more than $ 60 a barrel reduces the incentive for oil producers to maintain low production levels and increase the viability of investing in oil shale in the US, which will increase oil supply and bring its price back below $ 60 in the longer term.
According to the EIA, oil well drilling is expected to increase during the year as long as oil prices remain stable above $ 50 a barrel and supply of new oil wells is expected to offset the decline in old well production, which is expected to increase US oil supply later this year. -EIA, raised its estimate for U.S. oil production during 2022 to 11.53 million barrels per day, compared to the latest forecast that predicted U.S. oil output to be 11.49 million barrels per day.
It seems that the market is already very much pricing a future deficit that may be created in the market. Progress towards global marketing A growing variety of vaccines, which can be easily transported, and brought to the developing world at a low price, is an important signal of the potential increase in demand for crude oil in the future, which is already reflected in a very high “consensus” oil prices. Accordingly, futures forecast a slight decline in the price of oil in the medium term.
