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Lasting COVID impact
Rystad sees peak demand in 2028; oil benchmarks rise on election week Steve Sutherlin Petroleum News
The COVID-19 pandemic - together with the acceleration of the energy transition - will have a lasting impact on global oil demand, according to Rystad Energy.
In a Nov. 2 release, Rystad significantly revised its long-term oil demand forecast, which it now sees peaking at 102 million barrels per day in 2028, versus its previous call for peak oil demand of just over 106 million bpd in 2030.
The consultancy said its new forecast assumes a scenario under which “the share of oil in various sectors develops in line with stated government goals to move towards a cleaner carbon future, notably in the electrification of transport.”
Rystad said the persistence of the pandemic is likely to cause 2020 oil demand to decline to 89.3 million bpd, compared to 99.6 million bpd in 2019, adding that it expects demand to recover to 94.8 million bpd in 2021, capped by regional lockdowns and slow international aviation recovery.
Under the scenario, demand recovers to 98.4 million bpd in 2022, still retarded by structural COVID-19 impacts such as less commuting and slower aviation recovery, Rystad said, adding that it expects 2023 that demand to exceed pre-COVID-19 levels of 100.1 million bpd.
“The slow recovery will permanently affect global oil demand levels, shaving at least 2.5 million bpd off our forecasts made before the coronavirus” said Artyom Tchen, Rystad senior oil markets analyst. “The lockdowns will stunt economic recovery in the short-term and in the long-term and the pandemic will also leave behind a legacy of behavioral changes that will also affect oil use.”
Rystad said the energy transition is accelerating and also weighs on its peak oil demand revision, supplementing the effect of COVID-19 on oil demand.
All sectors contribute to the transition, but at 60% of oil demand, transport will be the ultimate driver of this shift, it said, adding that by 2025, the plug-in-hybrid and battery electric vehicles are expected to achieve 14% market share in new passenger vehicle sales - according to public governmental targets - then further grow to 80% by 2050.
Prices jump as US election arrives Crude oil benchmarks jumped higher Nov. 2, following a rough patch of decline in the previous week largely attributed to looming coronavirus lockdowns.
Alaska North Slope crude rose $1.22 to $38.06 per barrel, West Texas Intermediate rose $1.02 to $36.81, and Brent rose $1.51 to $38.97 as traders anticipated a hinted delay in easing of output cuts planned for January by the Organization of Petroleum Exporting Countries and allied nations.
On Nov. 3, ANS continued up $1.04 to $39.11, WTI went up 85 cents to $37.66, and Brent rose 75 cents to $39.71, after the American Petroleum Institute reported an 8 million barrel drop in crude stockpiles in the prior week.
A splash of cold water was thrown on price recovery hopes by a PVM Oil Associates Ltd. report Nov. 3 which suggested that the rally was powered by oil traders covering short positions.
“The jump has borne all the hallmarks of a massive, logical and even inevitable short-covering prior to the U.S. presidential election,” said Tamas Varga of PVM. “It would be tempting to conclude that the recovery from last week’s slump is now underway, but it is simply not a plausible scenario.”
The PVM report said that as sentiment changes in line with infection rates markets will strengthen, but prolonged rallies are unlikely.
“That will only happen after full recovery - and it is likely to be impressive,” PVM said. “The timing of it, however, is presently impossible to foresee.”
Brent continued upward by $1.52 Nov. 4, hitting $41.23. WTI traded above $39.
Norway exploration halved The Norwegian Petroleum Directorate has projected that about 30 exploration wells will be drilled on the Norwegian shelf in 2020, about half the level from 2019.
The decline in demand for oil and lower prices have led oil companies to reduce their exploration budgets for the year and postpone a number of exploration wells, the directorate said in an Oct. 27 report.
“Without new discoveries, oil and gas production could decline rapidly after 2030,” said Torgeir Stordal, NPD director for exploration.
However, there are still substantial remaining resources in all areas according to the report.
“New exploration technology and big data analyses can contribute to more discoveries on a mature shelf,” Torgeir said, adding, “A diverse range of players, good access to acreage and a higher volume of better-quality data have contributed to many discoveries.”
In areas with available and cost-effective infrastructure, even small discoveries can create substantial values, he said. Low unit costs also mean that future exploration can be profitable.
Average unit costs for discoveries in the 2000-2019 period were in the $25 per barrel range, and if costs can be contained at that level, future exploration will be profitable even with low oil prices, the directorate said.
“It will be important to develop minor discoveries while there is available capacity in nearby infrastructure,” the NPD said. “Exploration is urgently needed in areas where the infrastructure has a limited lifetime.”
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