OPINION: An almost unbroken rise in the price of crude since the start of 2021 came to a shuddering halt last week.
Brent blend oil has been trading at around $64 per barrel in recent days compared to close on $72 in mid-March.
West Texas Intermediate — the US benchmark — has followed a similar trajectory, slumping in price to around $60 per barrel.
The sudden drop is a spoke in the wheel for those — such as US banking giant Goldman Sachs — that were predicting the industry could be on its way back towards $100 oil.
It also dampens speculation of a new “super cycle” where the value of crude and other select commodities would race ahead.
This scenario was built on a series of factors: rapid vaccine rollouts that would halt the spread of the coronavirus; huge fiscal stimulus measures in the US; and the cutback in oil company spending that would lead to shortages amid a rapid increase in crude demand as the global economy pressed ahead.
But that optimism among the price bulls appears to have been overblown.
The International Energy Agency helped the price correction last week by pouring cold water on talk of a new super cycle and oil supply shortages.
“Our data and analysis suggest otherwise,” explained the Paris-based organisation, pointing to historically high inventory levels.
Yet the agency is still expecting demand to return to 2019 levels of 100 million barrels per day in 2023 and grow to 104 million bpd by 2026. The current level is around 96 million bpd, according to the US Energy Information Administration.
This compares with suggestions from UK supermajor BP last year that oil consumption levels may have already peaked.
Last week’s oil price correction has stubbed the toe of the more hopeful forecasters but others believe a price surge has just been delayed, not halted.
Goldman Sachs is still penciling in $80 oil this summer as it talks of a “rapid oil market rebalancing in [the] coming months”.
Rystad Energy said the precipitous oil price plunge last week was the popping of a bubble that was not justified by market fundamentals.
But the Norwegian consultancy also sounded a cautiously optimistic tone about future industry prospects, adding: “Setbacks in expectations happen, but that doesn’t mean the mission is totally off track.”
The next potential trigger for price fluctuations is the Opec+ meeting scheduled for 1 April, when May quotas are set to be decided, said Rystad.
There have been reasons to believe that oil demand was not going to be as strong as previously thought with renewed lockdowns in parts of Europe.
The rollout of the Oxford-AstraZeneca vaccine has gone quickly and smoothly in the UK but not in many other countries.
Rare but worrying instances of blood clotting halted the inoculation programme in many parts of the European Union.
The US has also been cautious on the vaccine — and opening up — while cases in countries such as Brazil continue to soar.
But US President Joe Biden’s stimulus package is real enough and the Financial Times reported that investors poured an astonishing $170 billion into equity funds over the past month.
It followed the Federal Reserve lifting its outlook for the world’s largest economy and saying it expected to hold down interest rates for three more years.
Oil inventory levels are still high, crude prices have been corrected and longer-term decarbonisation pressures remain.
But after a dismal 2020, the current year still looks pretty good for the oil industry.
(This is an Upstream opinion article.)