Oil analysts say a rebound in the world’s hunger for oil has already started after demand destruction caused by the COVID-19 pandemic fell far short of what many experts had expected.
Amrita Sen, co-founder and director of research for international consultancy Energy Aspects, says the bounce in demand will outstrip the ability of producers to restore supply, resulting in average Brent oil prices rising from about $43 US per barrel this year to $66 next year and $83 in 2023.
In a presentation at the virtual TD Securities energy conference, Sen says pandemic lockdowns of countries and industries resulted in forecasts for a 30 to 40 per cent decline from pre-pandemic global oil demand of about 100 million barrels per day.
She says her organization expected the decline to reach 28 million bpd but the maximum drop was 18 million bpd in April. The industry’s “spare capacity” has now has fallen to about 12 million bpd.
Sen says the shallower drop in demand and quick recovery illustrates how dependent the world is on crude and suggests that its oil dependence will not be diminished in the near term.
In an energy price forecast released Monday, accounting firm Deloitte also makes note of the oil demand recovery and predicts Brent crude prices will rise from an average of $39 per barrel this year to $46.50 in 2021 and $64 in 2023.
“There is some light at the end of the tunnel … as countries emerging from COVID-19 lockdowns improved crude oil demand over the past few weeks,” said the Deloitte report.
“The sector’s recovery will ultimately depend on the diligence of nations during the easing of lockdown restrictions, the duration and timing of the eventual reduction of the global production shut-ins, and disruptions to recovery efforts if there is a second wave of the virus.”
The report also says consumer behavioural shifts — in areas such as commuter traffic and business travel along with weakening global trade — may change the shape of the demand curve for global crude oil.
Regardless of the shape of the turnaround, the industry is facing a long climb back.
Kevin Neveu, president of Precision Drilling, said his company is currently running about 10 rigs in Canada. By the final quarter of the year, it could climb into 30s, he said.
“That’s a huge improvement from the lows of [the second quarter] but still making for the weakest year of Canadian activity we’ve dealt with in our history, as an industry and as a company,” he told the TD Securities conference.
Precision has cut its fixed costs by nearly a third since the downturn hit, including executive salary cuts, headcount reductions and clamping down on non-essential expenditures, such as travel.
Scott Treadwell, vice-president at Calfrac Well Service, one of Canada’s largest oil and gas well completion companies, told the conference that “caution” appears to be the overriding theme from energy producers.
“As you get into September, there seems to be more discussion around what the last part of the year looks like, maybe setting up for some producers to have a good start to 2021,” Treadwell said.
“But it’s kind of weeks and months away at this point more than anything else.“