Alaska North Slope crude slid 23 cents Jan. 27 to close at $55.53 per barrel. West Texas Intermediate rose 24 cents to close at $52.85, and Brent lost 10 cents to close at $55.81.
The major indexes remained steady, closing near the prices seen a week prior, despite fears early in the week about new COVID-19 breakouts in China, and reports that the Chinese government is dissuading its citizens from traveling over the Lunar New Year holiday which is traditionally a high travel period. The traditional festivities last over 15 days, and most Chinese people will get seven days off from work from Feb. 11 to Feb. 17.
Markets have also been wary of mutations of the COVID-19 virus such as those discovered in Britain that cause the virus to be more transmittable between people, perhaps because those infected with the virus produce more infectious particles than with previous variants.
Glitches in the rollout of COVID-19 vaccines and supply concerns have added further angst to oil markets.
On the other hand, Goldman Sachs analysts have concluded that actions taken by the Biden administration including restrictions on North American hydrocarbon leasing, drilling and pipelines are bullish for oil prices.
“As we have argued, policies to support energy demand but restrict hydrocarbon production (or increase costs of drilling and financing) will prove inflationary in coming years given the still negligible share of transportation demand coming from EVs (and renewables),” Goldman analysts said in a note.
Further, Goldman said, initial comments suggest little urgency in lifting sanctions with Iran, adding, “Combined with a push for greater fiscal spending - and hence higher energy demand - these initial actions reinforce our constructive view on oil and gas prices.”
Goldman was also positive about additional funding and resources to aid in the vaccine rollout.
“A faster vaccination roll-out would in turn accelerate the rebound in jet fuel consumption, which still accounts for more than half of the remaining lost oil demand,” it said.
Oil prices were further buoyed Jan. 27 by a U.S. Energy Information Administration report that U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased for the week ending Jan. 22 by 9.9 million barrels from the previous week, which saw a build of 4.4 million barrels.
Also bullish were reports by MarketWatch of possible supply disruptions from Iraq and Libya. Iraq said it intends to reduce production to meet its commitments under the OPEC+ agreement, while Libya’s exports may be compromised by its Petroleum Facilities Guard, over claims of unpaid salaries.
Multilateral approach supports needed investment
The Organization of the Petroleum Exporting Countries World Oil Outlook 2020 says $12.6 trillion will be required between now and 2045 in the upstream, midstream and downstream oil sectors.
OPEC Secretary General Mohammad Sanusi Barkindo, in remarks delivered Jan. 27 by teleconference to the S&P Global Platts Americas Petroleum and Energy Conference, said global multilateralism is needed to help drive the global energy transition.
Stability will be essential to helping bring on board the huge investments required in years ahead, he said.
“To place this in some further context, our current assessments show that upstream capital expenditure could have fallen by more than 30% in 2020, beyond the 23% losses experienced in both 2015 and 2016,” Barkindo said. “If this is not rectified it could leave long-term scars, not only for producers, but consumers too.”
Barkindo said the multilateral approach of OPEC and its allied producing countries has shown what can be achieved, but the future will need a broader coalition to tackle energy challenges.
Looking longer term to 2045, the global economy is expected to more than double in size, with world population projected to grow by over 1.7 billion people, he said.
“There are some who believe the oil and gas industries should not be part of the energy future, that they should be consigned to the past, and that the future is one that can be dominated by renewables and electric vehicles,” Barkindo said. “It is important to state clearly that the science does not tell us this, and the statistics related to the blight of energy poverty do not tell us this either.”
The science and statistics indicate a need to reduce emissions and use energy more efficiently, he said.
“Renewables are coming of age, with wind and solar expanding quickly, but - even by 2045 - in our WOO they are only estimated to make up just over 20% of the global energy mix,” Barkindo said. “Oil and gas combined are forecast to still supply over 50% of the world’s energy needs by 2045, with oil at around 27% and gas at 25%.”
