Analysts Project $100 Supercycle for Oil Post-pandemic

A steady rise in oil prices since late last year could presage a new ‘supercycle’ in oil as the world economy recovers from the pandemic, the Financial Times has reported.

The newspaper quoted two of the biggest banks on Wall Street calling a new supercycle in oil, with JPMorgan Chase and Goldman Sachs, both predicting prices will soar when the pandemic abates.

In related news, the Secretary-General of the Organisation of Petroleum Exporting Countries (OPEC), Dr. Sanusi Barkindo, has said that investments in the global oil and gas industry fell by 30 per cent in 2020.

The most bullish forecast has international crude prices staging a comeback towards the $100-a-barrel region — a level not reached since 2014.

The expected surge is predicated on the belief that fiscal stimulus will boost consumption just as investment in new production has been sucked out of the industry.

Such a disconnect between demand and supply, fuelling a lasting surge in prices, are the basic conditions of a so-called supercycle.

“We’re going to be short of oil before we don’t need it in the years to come,” it quoted JPMorgan’s head of oil and gas, Christyan Malek, as telling clients at a conference, adding that “We could see oil overshoot towards, or even above, $100 a barrel.”

Brent crude, the international benchmark, is up more than two-thirds since the end of October to $63 a barrel, driven by vaccine optimism and production cuts by leading exporters.

Veteran Goldman Sachs analyst Jeffrey Currie, who was a key voice in oil’s last supercycle between 2003 and 2014, told the Financial Times he believes there are real risks that oil trades in the $80 range “or even higher this year”.

But this time it is not the emergence of an energy-hungry China that he predicts will boost consumption, but stimulus spending by governments around the world, such as the $1.9 trillion proposed in the US by the Biden administration — including for “green” infrastructure.

Before the pandemic, global oil demand was around 100 million barrels a day, but fell to an average of around 90m b/d, last year and analysts predict it is unlikely to reach pre-pandemic levels until 2022, once vaccine rollouts allow a wider resumption of long-distance air travel.

Meanwhile, the Secretary-General of the Organisation of Petroleum Exporting Countries (OPEC), Dr. Sanusi Barkindo, has said that investments in the global oil and gas industry fell by 30 per cent in 2020.

The OPEC boss said to meet global oil demand, the sector would need a cumulative investment of $12.6 trillion in the upstream, midstream, and downstream through to 2045.

Barkindo, at a conference organised by the International Energy Forum (IEF), together with the International Energy Agency (IEA) and OPEC, added that the oil industry remains arguably the most impacted by the COVID-19 pandemic.

He stated that almost 110 million people had been infected with the virus, over 2.4 million died, and millions of livelihoods destroyed, with no region or sector spared.

Quoting from the 14th edition of the OPEC World Oil Outlook, which was launched on October 8, 2020, Barkindo stated that global primary energy demand would continue growing in the medium and long term, rising by 25 per cent by 2045 while oil will remain the largest contributor to the energy mix in 2045 at 28 per cent.

“To meet this future demand, the global oil sector will need a cumulative investment of $12.6 trillion in the upstream, midstream, and downstream through to 2045. These investments are essential for both producers and consumers.

“Underinvestment remains one of the great challenges for our industry and this was exacerbated by the COVID-19 pandemic. Over the course of 2020, investments declined by 30 per cent. We need to work towards creating an investment-friendly climate,” he added.

He said as the world economy contracted by 4.1 per cent in 2020, global oil demand declined by 9.7 mb/d, adding that last April, demand plunged 22 per cent and on April 20, 2020, WTI went negative for the first time in history, with prices plummeting to -$37.

He, again, lauded the role played by members and allies of OPEC through the ‘Declaration of Cooperation’, saying that this resulted in the largest and longest-in-duration production adjustments in the industry’s history.

According to him, though the world has seen a recovery in the industry that has multiplier benefits for the global economy, there are still many uncertainties ahead.

Barkindo stated that as the extreme weather in Texas has shown, the world cannot take energy security for granted, even in a country like the United States where an Arctic blast has disrupted electricity supply.

Emmanuel Addeh

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