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Page added on May 23, 2021

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Macro drivers signal higher oil prices in 2022

Consumption

While big macro drivers-including a weaker USD, inflation and monetary easing all point to higher oil prices in 2022, micro headwinds (Iran, India’s 2nd wave) may fade in the second half 2021, according to a new a BofA Global Research report.

A post-Covid scenario marked by a permanent reduction in mass transit use could quickly translate into a major world-wide oil demand rationing exercise. Even if electric vehicle (EV)  sales reach 34% by 2030, an acceleration in miles driven of 20% could push peak oil demand levels to 109 million barrels per day (b/d) by 2027.

On the supply side, oil field decline rates have accelerated sharply in 2020 and in early 2021. Plus energy capex has come down sharply in the past year and now the IEA is calling for further investment reductions to meet climate goals. Reflecting a tighter market ahead, Brent in 2026 recently traded above $59 per barrel (/bbl) last week, up from a 2020 low of $47/bbl.

“With spec oil positions relatively low and CO2 prices rising too, we see room for long-dated oil prices to move structurally higher by $5 to $10/bbl,” the BofA Global Research report said.

Micro headwinds fading

While a Covid-19 surge in India has depressed mobility, the link between Covid-19 cases and fuel consumption is starting to break down around the world. In part, workplace mobility is picking up thanks to the global vaccination campaign. For instance, despite a resurgence in Covid-19 cases in countries like Chile, the UAE, or Bahrain (nations with some of the highest vaccination levels in the world), hospitalization and death rates have stayed low. So mobility has kept improving there.

With global transportation demand set to recover sequentially, the upcoming new Iran nuclear deal could be the next bump in the recovery path for oil prices.

“Even then, we see three mitigating factors: (1) a return of Iran is already embedded into our global oil balances, (2) Opec+ will likely act to accommodate the comeback one of its largest members, and (3) Iranian output is already nearing 2.4 million b/d anyway, up 0.36 million b/d YoY,” the BofA Global Research report said. – TradeArabia News Service

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