The oil price is caught between a short-term recovery and the medium-term prospect of peak oil, as countries ramp up programs to decarbonize by switching power generation sources and banning internal combustion engines (ICE).
The oil price has been seesawing between vaccine optimism and pandemic pessimism. Yet, it has managed a gradual recovery from its lows last year to around $50 a barrel now.
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Oil price recovers … but outlook remains muted
However, the oil price is nowhere near where most OPEC+ members would like it to be. It’s also not where shale producers need it to be to sustain capital raising for a return to growth.
However, the oil price could arguably have been a lot less. The price owes its current position to stoic management by OPEC+’s leading producers, Saudi Arabia and Russia.
Consumption still hasn’t recovered to a pre-pandemic level. Furthermore, it doesn’t have any prospect of reaching the levels projected for 2021 global consumption this time last year.
Demand destruction has come from three main areas, the Financial Times notes, none of which are likely to turn around anytime soon.
The first factor is jet fuel. Air travel is severely depressed and is unlikely to fully recover for several years. Current consumption is some 2.5 million barrels per day below pre-pandemic levels.
Meanwhile, the second factor is gasoline and diesel consumption, which will likely recover more quickly. Even so, it will likely not see 2019 levels this year.
The final hit is from a wider loss of industrial activity and lower levels of goods shipped by sea.