This must work if we want oil to come back, like after the financial crisis: – History shows that it is possible

– Few times in world history have we had a decrease in the demand for oil. But the times it has happened, we have had a “recovery” effect, says oil analyst Helge André Martinsen at DNB.

Tuesday the price of a barrel of North Sea oil fell to $ 39 a barreland the price of oil has fell more than 12 percent in one week. The price decline follows an almost continuous rise from lows of less than $ 20 in late April.

However, oil expert Martinsen does not believe that the trend of the past week is the beginning of a long-term decline in oil prices.

The drop in prices has been due to several minor factors: Refineries have had a lower appetite for maintenance oil, China has bought more crude than the country has managed to digest, while the stock market has been tough lately, Martinsen says. .

DNB oil analysts still believe that the price of a barrel of fuel oil will hover around $ 47 a barrel in the fourth quarter. In the same period the following year, analysts believe $ 60 a barrel.

– Over the next 12 to 18 months, we believe that the oil market will improve significantly. For oil demand, we now don’t see the rate of improvement that we saw in the months after April. The pace has probably slowed down, but it is not a further decline. Demand continues to pick up, only slowing down a bit going forward, says Martinsen.

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Oil cooler requires mass vaccination

In light of the financial crisis, the worst economic recession the world has experienced since the 1930s, demand for oil fell in both 2008 and 2009 after a steady rise since the 1980s.

But in 2010, two years after the climax of the financial crisis, global oil demand increased again by almost 3 million barrels of oil per day, as the IEA graph below shows:

The average price of a barrel of fuel oil was $ 79.47 in 2010, an increase of 29 percent from the previous year. In addition, the average price increased to $ 111 a barrel in both 2011 and 2012.

Can the same happen in 2021 and 2022, after a 2020 year of sharply reduced demand for oil and oil prices below $ 20 a barrel? Oil analyst Martinsen does not want to rule out a situation similar to the one after the financial crisis, but emphasizes that a lot will have to happen for that to happen.

The DNB analyst believes that a world with a wide distribution of coronary vaccines is needed before our travel habits return to normal levels. Such growth in travel and oil consumption will also be partially related to the evolution of the global macroeconomy, believes Martinsen.

– If you are left with a high level of unemployment after the corona pandemic, such a recovery will be difficult. But if unemployment falls rapidly at the same time as industrial production and mobility increase, it is definitely a possibility, says the oil analyst.

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In any case, DNB’s team of analysts doesn’t think the world will be like 2019 until at least 2022. And even then, demand for oil will be 3.3 million barrels per day lower than analysts actually expected for the year.

– So the question is how much of the gap is closed. It would have been a positive surprise, and history shows that it is possible, says Martinsen, who believes we must wait until 2023 before air traffic normalizes again.

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Saudi Arabia and Russia swing the whip

The oil analyst thinks it is strange that the price of oil has risen steadily from the low of less than $ 20 a barrel in April. It’s rare to see a stable oil price in an unstable world, says Martinsen.

The steady rise in prices is due to the fact that oil consumption is increasing as more countries have completed the most extensive closures. The move the OPEC oil cartel took this spring was also crucial, according to the oil analyst. The Organization of the Petroleum Exporting Countries agreed this spring to deeply cut oil production to prevent the world from being completely flooded with oil.

Together with partner countries like Russia, the cartel made sure that no one produced as much oil as usual. Previous agreements between OPEC and partner countries have been characterized by deception, where several have not complied with the cut agreements. This time, the vast majority of countries, including Russia and Saudi Arabia, have kept their promises.

– In general, it seems that all the OPEC + countries have understood that we are in a state of emergency, and that a total collapse would occur if something dramatic was not done, says Martinsen and continues:

– Now that the countries have recovered, we see that the partner countries have worked hard internally to end the traps. We recently saw that the countries that had cheated had to sign an agreement that said they had to compensate for the barrels that they had not cut earlier this summer. We have never seen this before in the OPEC + countries.

Rystad Energy analyst Paola Rodríguez-Masiu writes in an update Monday that OPEC + is also the key to further growth in oil prices. She writes that negative signals from both the oil giant Saudi Arabia and China, the world’s largest oil importer, contribute to the mood in the oil market having recently soured.

– We cannot see oil prices recovering to anything close to $ 50 a barrel anytime soon, unless OPEC + decides to cut production further. Even if it had been ideal, it is an unlikely scenario, writes the Rystad analyst.

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