Will the price of oil soar again?
Big oil cuts oil exploration, but demand could rise again (and price too)
The idea that oil can never reach triple-digit price levels again may seem ludicrous at a time when weak demand from the pandemic has frozen oil at $ 50. Certainly, any market is not static by its very nature and many expect the spread of vaccines to increase oil demand before the end of the year. Although analysts are beginning to warn about the hypothesis of an imminent supply deficit in conjunction with a cut in exploration activities.
NEW EXPLORATIONS FALL
Reuters reported this week, citing data from Rystad Energy , that new onshore and offshore lease acquisitions by the world's top five oil companies fell to a minimum in at least five years in 2020. Of course, much of that decline is been caused by the pandemic, but it is also the pandemic that is spurring a potentially permanent change in Big Oil's agenda.
BP CUTS STAFF FOR EXPLORATIONS
For example, BP decimated its oil andgas exploration team, another Reuters article revealed this week, citing company sources. From more than 700 a few years ago, there are currently fewer than 100 people on the team, with the rest either fired or moved to energy divisions dealing with low-carbon projects – BP's top priority for the future.
“The winds have gotten very cold on the exploration team since Looney's arrival. This is happening incredibly fast, ”Reuters wrote, quoting a company employee on the exploration team.
Perhaps the reduction in exploration activities is fully justified by the change in priorities for BP and the other companies in the sector. Big Oil is increasingly dealing with renewable energy, electric vehicle charging and energy storage. All European companies have a plan to reduce oil production in the long term. For example, BP expects to cut 1 million barrels per day by 2030.
THE PUSH OF ENERGY TRANSITION
The shift in priorities for European supermajors is largely driven by the European push for the energy transition which aims to 'dethrone' oil – and subsequently gas – from the first place among energy sources in favor of solar and wind. Asian economies also have ambitious plans. “However, there is a small chance that they have overestimated the pace of the energy transition,” Oilprice warned .
German think tank Ember welcomed Europe's latest milestone in transition: for the first time, renewable energy accounted for a larger share of Europe's energy production than fossil fuels. At 38 per cent, wind, solar and hydroelectricity beat oil, coal and gas by one percentage point.
THE COLD AWAKENED THE ROLE OF GAS
But it might be fair to mention the collapse in global energy demand that the pandemic caused last year, which may have played an important role in changing the situation of Europe's energy supply. We have seen evidence of this recently: earlier this month, the winter cold spell that hit Europe pushed natural gas prices to multi-year highs, as reported by Natural Gas Intelligence, in conjunction with the drop in wind and solar power generation which generally does not perform at its best during the winter.
THE TRANSITION WILL NOT BE AS FAST AS YOU THINK
When it comes to oil, virtually all banks and energy consultancies expect demand to rebound as soon as enough people are vaccinated to return to normal. That strong demand for oil is still part of the norm should be pretty telling: the energy transition won't happen as fast as many might hope, including some oil companies.
POSSIBLE DEFICIT OF OFFER THIS YEAR
Bullish forecasts on oil demand have sounded the alarm about a possible deficit coming this year. This may or may not happen, but such warnings hint at the possibility that Big Oil, with its rapid cutback of new oil and gas exploration, could put the cart before the horse on the whole question of the energy transition. Also with the EU's intentions to discourage investments in oil and gas production globally.
(Article published on Energia Oltre, here the full version)
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/il-prezzo-del-petrolio-schizzera-nuovamente/ on Sun, 31 Jan 2021 15:34:26 +0000.