The world’s biggest oil trader expects oil prices to stay above $100 “for a long time”

2022-05-01 0 By

Russell Hardy, chief executive of Vitol Group, said oil prices were likely to remain above $100 a barrel for an “extended period” of six to nine months as global demand hit a new record this year.Oil prices are likely to remain above $100 a barrel for an “extended period” of six to nine months as global demand hits a new record this year, Russell Hardy, chief executive of Vitol Group, the world’s largest independent oil trader, said in an interview.Crude prices had surged to near $100 earlier this month as supplies were constrained as the global economy recovered from the pandemic.Hardy said the market will become tighter with daily oil consumption well above pre-pandemic levels by the end of 2022.”Consumption could exceed 100 million barrels this year,” Hardy said. “If the travel industry continues to normalize, demand will surge in the second half.”Energy supplies are struggling to keep up with a strong economic recovery, but many OPEC+ members have been unable to restore all output, plagued by underinvestment and supply disruptions.At the same time, companies ranging from US shale drillers to global supergiants have focused on handing out cash to shareholders rather than increasing production.This caused oil prices to rise and sent inflation soaring.This has the potential to derail the global economic recovery and create a cost-of-living crisis for millions of people.”The market needs more crude,” Hardy said.”With demand going to be one or two million barrels a day higher by the end of the year than it was at the end of 2019, the system is going to be pretty strained.”Further evidence of market tightness is the “backwardation” in oil futures, which is prevalent in crude oil, diesel, natural gas and coal.”The fact that all markets are lagging so far suggests there is not much room for manoeuvre in the system,” Hardy said.However, the recovery in fuel demand is uneven across the overall market.In terms of petroleum products, Vitol said the U.S. is currently consuming about 400,000 barrels less gasoline than it did in February 2019.”We still believe that working from home is affecting demand,” Hardy said.High prices may also encourage drivers to use their cars less.”Instead, industrial transport using diesel is driving demand growth, but jet fuel consumption remains constrained by a lack of long-haul flights.On the output side, Hardy said oil supply is growing, just not as fast as the demand side.U.S. shale oil is growing, too, but not to the levels seen during the boom.Capital constraints and personnel shortages by drilling companies also hampered production, Hardy said.OPEC+ is gradually ramping up production and the nuclear deal with the United States may allow Iran to produce an additional 1 million b/d, but this capacity has already been factored into the market’s supply for the second half of the year, Hardy said.”Eventually, we will run out of spare capacity.To what extent this is a concern is what the market wants to find out.”