Nadia Wiggen predicts a significant jump in oil demand, which will strengthen the oil price. The decisive factor will be the world’s leading superpowers: the United States and China.
Published: Published: Just now
On Thursday this week, the price of North Sea oil rose to 64.6 dollars a barrel after the oil cartel Opec + decided to increase oil production gradually in May, June and July.
Oil analyst and partner in the brokerage house Pareto, Nadia Wiggen, believes Opec + has taken a gradual, controlled approach – without acting in a panic. She points out that Opec + now has monthly meetings.
– The current reaction in the market is about production in May. The driving season in the USA begins at the end of May. This summer could potentially be extreme, says Wiggen.
– Now the US looks like a success story, but if the driving season does not deliver, Opec + can still adjust production.
Wiggen believes the oil price will be more stable after the meeting, without such “extreme fluctuations”.
– Oil prices will go higher, but will not necessarily shoot up, she says.
– The market wanted a free gift from Opec +, but did not get it. Instead, we need to see in the physical oil market that China is starting to buy more oil again to push prices higher.
– It is important that the USA and China take care of things
The Pareto analyst still believes that there is an increase in global oil demand of 6-8 million barrels per day by the end of the year.
But much depends on demand in the United States and China, the two largest economies in the world.
– It is so important that the USA and China take care of things. These are the two largest oil consumers, says Wiggen.
The day before Thursday’s meeting, Opec + downgraded its estimate of an increase in global oil demand in 2021 by 300,000 barrels to 5.6 million barrels per day.
– Based on the guidance to Opec +, we expect that there will be an increase in demand of 2 million barrels per day compared to last month, either in June or July, which is as much as the whole of Norway’s production, says Wiggen.
– It is a pretty big jump, but difficult to time exactly today.
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Looking at oil refineries and stock figures
To understand when the jump may actually come, Wiggen closely monitors oil refineries and inventory figures.
“If we see China return to the market and see consistent declines in US inventories due to more refining of oil to make petrol for the driving season, we will really see a jump in demand,” says the Pareto analyst.
She explains that the oil price was pushed up a lot after the previous Opec + meeting. But then vaccination slowed down and the Chinese began to buy less oil, which led to the price pulling back.
– At the beginning of the year, China began to buy a lot of oil after solid GDP growth in the fourth quarter of last year. But in March, purchases went down due to the maintenance season. China has bought less North Sea oil and more Iranian oil, which has sent the burning price down.
Wiggen points out that China often buys large tankers with oil, which helps to raise the price. But when China is less present in the market, it creates a weakness for North Sea oil.
– When the peak of maintenance at the oil refineries is over in March and April, China will start buying more oil. China is the world’s engine room in the recovery from the corona, which actually burns a lot of oil, says Wiggen.
This week, recent figures from the EIA showed that crude oil inventories in the US fell for the first time in five weeks. At the same time, utilization at American refineries increased.
– Last week’s stock figures showed the first major jump in refinery utilization in the USA. It shows that the United States is about to start up, says Wiggen.
The EIA figures also showed that bone prices in the US fell sharply, which shows that demand for petrol has increased.
“The Americans have started flying, but the oil demand for driving can go much further,” says Wiggen.
Wiggen says that oil demand in the United States is still 10 percent lower than before the pandemic, but that demand for gasoline could skyrocket if far more Americans choose to drive on vacation instead of flying.
– We are already seeing examples of road traffic matching pre-pandemic levels in California as people choose to drive rather than fly.
She explains that high fuel consumption in the USA can also benefit North Sea oil.
– When the US imports oil to make petrol, instead of using its own shale oil, they mainly buy West African oil. The West African oil goes mainly to Asia or the United States, but now it is not bought much in Asia.
– If the driving season in the US really flies, West African oil will go to the US instead of Europe. It will be good for the price of North Sea oil, because it will have less competition, says Wiggen.
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Uncertain in the rest of the world
Outside China and the United States, the outlook for oil demand is very uncertain.
– The market also hopes that demand from India will return, but vaccination is quite delayed there. India has also increased taxes on petrol and diesel. Demand will increase, but not as much as hoped. The monsoon season starts in June, which dampens demand, says Wiggen.
She describes Europe as “a mess”, but says that the continent is not so important as demand has been falling year by year over time.
In South Korea and Japan, demand for gasoline was falling year by year even before the pandemic.
– In the southern hemisphere, it is soon winter, which can increase the number of corona cases and put a damper on demand, Wiggen says.
Published: April 3, 2021 08:19
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