BAKU, Azerbaijan, March 2
By Leman Zeynalova – Trend:
Not bringing more barrels on line in the near-term could trigger prices spiking beyond $70/bbl already in 2Q21, hurting a fragile economic recovery, Trend reports with reference to JP Morgan.
“While elevated oil prices will likely not act as a drag on a global basis, there are already signs that rapidly rising oil prices are becoming problematic for some oil-importing economies. In Brazil, a trucking strike related to the price of diesel among other issues, took place in early February, raising fears of a repeat of a 2018 protest that snarled roadways and depleted store shelves. And in India, price-sensitive consumers are getting adversely affected by rising petroleum product prices. High oil prices could also raise credit issues for sectors like airlinesand cruise lines, who face higher input costs without as much benefit from global growth. Our assumed OPEC+s inactivity in 2H21 is largely a function of the fact that the alliance does not have to battle for market share just yet,” JP Morgan said in its latest report.
With US production 2.5 mbd lower today than its 2019 peak, the Bank believes there is virtually no chance of a significant increase before 2022.
“This should allow the OPEC+ alliance to normalize inventories and not only keep prices elevated but also keep the forward curve backwardated through much of 2022. Unlike supply-driven rebalancing in 2021, oil prices will be dictated by demand in 2022. With demand back to pre-Covid 19 levels and growing, and global inventory normalized, Brent prices should strengthen to reach close to $80/bbl by 2Q22 even with OPEC+’s production back to 2019 levels. The situation might begin to change somewhere in late-2022,” reads the report.
JP Morgan said that for one, history tells that when the post-recessionary global economic bounce comes to an end (somewhere in 3Q22), the intensity of oil demand to GDP will halve. “There are good reasons to believe that the ratio will recede below the historical norm of 1:0.5 due to greater mandated fuel efficiencies and increased penetration of electric and hybrid vehicles. What’s more, even under a Biden administration, the price will likely remain the short-term determinant of US production growth. Indeed, a $65-70/bbl oil price almost assures 1 mbd growth in US oil output alone in 2022.”
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