The world’s top commodity traders have predicted a return to $100 a barrel of oil, as investment in new supplies slows before demand peaks and green alternatives can tackle the recession.
Executives from Vitol, Glencore, Trafigura and Goldman Sachs said on Tuesday that $100 for crude is a real possibility, with prices already hitting a two-year high this week as Brent crude moved. Above $73 a barrel.
This prediction comes at a time of concern about Inflation is on the rise And many commodities, such as copper, have already reached record levels, buoyed by tight supplies as the economic recovery gathers pace.
Oil has been left behind by slowing demand during the coronavirus pandemic and fears that demand may peak in the next decade. But predictions that prices will move much higher in the next few years have gained momentum in recent weeks.
Jeremy Weir, CEO of Trafigura, one of the world’s largest independent oil traders, told FT Commodities Global Summit On Tuesday he said he was “worried” about the lack of spending on new supplies because the world was not ready to make the leap toward clean energy and full electricity.
“I actually think there is an opportunity for oil to rise to these numbers,” he told the summit. “The oil issue is not demand… the supply situation is very worrying. We have gone from 15 years of reserves to 10 years. We have seen capital spending go from $400 billion a year five years ago to just $100 billion a year. So, there is a concern. On the supply side…which I think will likely lead to higher prices.”
Alex Sana, Glencore’s largest oil trader, also said that a $100 oil price seems more likely.
“If you cut the supply without meeting your demand at the same time, that is when you could experience price turbulence,” Sana said. “You’re really only one or two events away from a physical rise in oil prices.”
Oil hasn’t traded above $100 a barrel since 2014, when increased supplies from the US shale sector drove up oil prices. The last so-called super cycle Till the end. At the beginning of this century, oil prices rose from nearly $10 a barrel to over $100 in 2008, buoyed by rising Chinese demand. Prices, while volatile, averaged around $100 a barrel over the next six years.
Russell Hardy, chief executive of Vitol, the world’s largest independent oil trader, said $100 oil was a “possibility”, although he believed there should be enough spare capacity, with OPEC and allies like Russia continuing to restrict supplies due to the pandemic.
“There are 5 million barrels of excess production off the market today,” Hardy said.
But Jeff Cory of Goldman Sachs, a leading proponent of a rally in oil in the past decade, argued that commodities are looking into a new super-cycle as government stimulus measures boost demand.
He believes that the demand for oil will rise because policy makers will use spending on massive green infrastructure projects as stimulus measures aimed at tackling inequality.
“We’re arguing that every $2 trillion in green capital spending equals about 200,000 barrels a day of oil demand,” he said.
Twice Weekly Bulletin
Energy is the indispensable business of the world and the source of energy is its newsletter. Every Tuesday and Thursday, straight to your inbox, Source Energy brings you essential news, forward-thinking analysis and inner intelligence. Register here.
Hardy said at Vitol that the trading house believes that oil demand will peak around 2030, but that demand will not initially fall sharply at first, and instead will fall far above the level of 100 million barrels per day that it first reached in 2019.
He said the main period for the risk of an oil supply gap was between 2025 and 2030, and that due to growth in the developing world, it would take until 2040 for global oil demand to start declining rapidly.
“It is likely that the demand for oil will continue to grow until 2030, and it is clearly dominated by developing and non-OECD markets,” he said.
Marco Dunand, co-founder of Mercuria, said he expects oil demand to recover to pre-pandemic levels and reach just over 100 million barrels per day by the end of the year, while Torbjörn Törnqvist, Chairman of Gunvor, agreed that a return could be possible. $100 for oil. and that higher prices were necessary to stimulate investment in the industry.
Some of the biggest oil producers such as BP and Royal Dutch Shell have said their oil production will begin to taper off in the coming years as they shift investments towards greener forms of energy under pressure from investors.
Equinor, Norway’s state-backed oil company, said on Tuesday it would allocate 50 percent of its capital spending to renewable, low-carbon investments by 2030, but it did not expect to see its oil production decline until after that date.