Brent has fluctuated between $ 37 and $ 45 a barrel as investors have been grappling with Covid-19 lockdowns, weak demand, and potential vaccine expectations since June. It is encouraging to think that $ 48 per barrel, the highest level since March, could be a new base.
This may sound nice. After Brent fell below $ 20 in April, crude oil storages jumped to 7.8 billion barrels well above normal levels, and the surplus is still high enough to act as a brake on high prices.
High Brent may prompt oil producers of the OPEC + group to loosen production cuts that has been made to support prices. If the price rises, it will contribute to the costs of the drillers, and the enthusiasm of US shale oil producers to increase pumping.
Still, the International Energy Agency’s negative assessment on November 12 predicts that there will be no significant increase in demand until the second half of 2021. There are now four successful vaccine trials that could lead to a faster return to normal life. This could lead to a faster recovery in global daily demand that the IEA expects to be 97.1 million barrels next year, compared to 100 million barrels seen in 2019.
While the price of oil is likely to jump in the short term, there is a second driving force that should be support in the coming years and even balances countries’ efforts to get rid of fossil fuels. The capital investment made by drillers around the world in 2019 was $ 530 billion, but it is expected to be $ 380 billion this year and potentially $ 300 billion in 2021, as manufacturers damaged by Covid-19 curb investment. Although China and the US adopt long-term zero-emission targets, daily oil demand is estimated to be 101 million barrels in 2030 compared to 2019 data.
The potential price increase is currently unclear for longer term Brent futures. The delivery contract in December 2024 is currently under $ 50 per barrel. This may change soon. It may also urge some major fuel companies to rethink which are much slower than the others in detailing the transition to renewable energy. They may now tend to increase their oil investments instead.