Even if the vaccines remain effective against the new COVID-19 mutants, a true crude oil market rebound is still a long shot.
Strong headwinds continue to disrupt crude oil markets in the new year.
In 2020, COVID-19 triggered demand destruction, with some insisting that global oil demand may have already peaked.
Lifestyles changed – apparently forever. Working from home became the new norm, commuting to the workplace became extinct and flying became less prevalent.
All these factors will continue to influence global crude oil demand in 2021.
The key downside for the crude world in the new year could be the mutating strains of the coronavirus, 39 energy experts polled by Reuters said last week.
The new COVID-19 strain – first identified in the United Kingdom – and soaring cases across the U.K., other parts of Europe, the United States, Canada and even in Pakistan, are likely to cap oil price gains in the early months of 2021.
This is a crushing blow to the positive sentiments generated on the news of the rollout of the vaccines.
Even if the vaccines remain effective against the new mutants, a true market rebound is still a long shot. After all, it may be the end of the year before everyone who wants to gets vaccinated. And global economic activity may not revive until everyone is vaccinated.
Climate change is another major factor hovering over the global crude oil scene. The transition to a low-carbon future has contributed to predictions that peak oil demand has arrived.
The arrival of United States president-elect Joe Biden to the White House also carries a significant impact on the climate change movement. In sharp contrast to the stance of President Donald Trump’s administration, the appointment of John Kerry as the presidential envoy for the climate in the incoming administration underscores Biden’s commitment to tackling the global climate crisis.
It’s apparent that the new administration will encourage green electricity systems and electric vehicles – at the expense of fossil fuels. The U.S shale oil and gas output could suffer. Biden has already indicated he will stop issuing leases for any new drilling on federal land, which now represents 22 per cent of U.S. oil production and 13 per cent of gas production.
Electric vehicles are also a crucial part of the Biden plan: establishing 500,000 charging stations in the U.S. was part of his election platform. In order to overcome one of the biggest hurdles facing electric vehicles – potential buyers’ fear that they won’t have enough places to charge up – that many charging stations are absolutely required.
Biden needs the support of Congress to meet this target. But if he succeeds, it could spark the sale of some 25 million electric cars and trucks, BloombergNEF projected. This would significantly cut fossil fuel consumption.
The possible restoration of the Iran nuclear deal under Biden is another major variable. This could result in more Iranian oil coming to the market, weakening the cohesion within the Organization of Petroleum Exporting Countries and its allies in OPEC+.
Fissures within the group are already visible. Russia supports a gradual increase in output. “To restore our output, that we’ve reduced a lot, the price range of $45 to $55 a barrel is the most optimal,” Deputy Russian Prime Minister Alexander Novak told reporters in Moscow. “Otherwise, we’ll never restore production, others will restore it.”
But OPEC president Abdelmadjid Attar says OPEC+ should stay cautious. The new COVID-19 strain is likely to weigh on global oil demand, Attar told the daily newspaper El-Watan.
So oil-producing nations need to continue balancing their act. It remains to be seen if they will.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris.
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