The rising crude oil prices on the international market will continue for a longer period this year, an oil and gas expert with years of experience has said, citing a number of factors.
Dr. Babajide Agunbiade, who is a Director at National Oilwell Varco, an American Oil and Gas drilling and production operations conglomerate based in Houston, Texas, cited the rolling out of COVID-19 vaccines, saying as they are being rolled out, people would become immune to the virus and this, he argued would lead to a reduction on the lockdowns which would cause business activities to resume and thereby creating demands for refined petroleum products.
“This will increase demands which will invariably continue to sustain the increment in the oil price,” he posited.
Another factor which Dr. Agunbiade cited is the falling US dollar on the back of global economic recovery and continued stimulus spending in the US as announced by The US Federal Reserves are bullish for oil prices, and would help favour the rise in oil prices this year.
“Also, with the cartel – OPEC+, resuming its traditional role of setting crude prices for the world, Saudi Arabia withdrawing another one million BOPD, there is all likeliness for a sustained oil price this year,” he added.
Dr. Agunbiade, who was responding to questions posed by energynewsafrica.com also, touched on what has been driving the rise in crude oil prices.
Below is the questionnaire and response:
What is the possible driver for the rise in crude oil prices in the beginning of 2021?
Demand is Returning
In spite that demand for petroleum product has been limited by the current lockdowns, the trend is higher i.e., there have been a strong move higher in the key crude oil benchmarks – WTI and Brent, in the last several months. This was initiated by the advent of positive news on the Covid front that the vaccines in development were extremely efficacious, promising an endpoint to the spread of the virus. This has led to business activity resuming and thereby creating demands for refined petroleum products causing a rise in crude oil price in the beginning of 2021.
The Political and Macro Environment Push Supplies Lower
There are effects that comes with election. The Democrats having a concentration of power by controlling all three branches of government in the next couple of years, is causing a gradual decline in U.S. shale production and inventories resulting in boosting an uptrend in crude.
Other key driver for the recent increase in oil prices has been the deal to slowly cut the OPEC production cap in the first quarter instead of a hard 2 million barrels a day. OPEC+ agreed to raise oil supply by 500,000 barrels a day in the next month, well below the 2 million barrels mark. Also, the increase is due to Saudi Arabia ‘gift’ to remove another 1-million BOPD from the market. Saudi Arabia is known as one of the world top three crude oil produces and its unchallenged place as the lowest-cost producer in the world.
Oil prices is bullish as the role for swing producer has been resumed by OPEC+.
Commodity Prices will Boom
Crude Oil is the number one commodity that matters to the world economy the most. Other than the scarcity that drives the price of crude oil, the fact that its priced in dollars also makes it susceptible to inflationary pressures. The dollar index has declined over the last year but has recently seen support with a weeklong trend higher which has caused bullish in oil. Oil prices is bullish with a stronger dollar because you get less oil for the dollar, which means to get an equal amount, you need to spend more dollar.
Are we likely to see this rise in oil prices sustained for a longer period this year?
According to the above drivers that have led to an increase in the price of Oil, there is a strong likeliness of a sustained oil price this year.
Firstly, as the COVID-19 vaccines are been rolled out, people become immune to the virus thereby a reduction on the lockdowns which will cause business activities to resume and thereby creating demands for refined petroleum products. This will increase demands which will invariably continue to sustain the increment in the oil price.
A falling US Dollar on the back of global economic recovery & continued stimulus spending in the US as announced by The US Federal Reserve are bullish for oil prices, and will help favor the rise in oil prices this year.
Also, with the cartel – OPEC+, resuming its traditional role of setting crude prices for the world, Saudi Arabia withdrawing another 1-million BOPD, there is all likeliness for a sustained oil price this year.