As the world continues to recover from the Covid pandemic, a bullish view on oil continues to push up prices, with Brent crude futures trading in excess of US$75 per barrel for August contracts – hitting its highest level in more than 2.5 years
As of 8:36 AM EDT, Brent crude (ICE) was trading at US$75.57, a change of US$0.76, according to Bloomberg. For the year, Brent crude is up 46% and underinvestment in oil supply could continue to push pricing to US$100 per barrel by next year, according to Trafigura chief executive Jeremy Weir.
"The supply situation is getting quite concerning," Mr Weir told the FT Commodities Global Summit, reported Argus. Mr Weir noted the drastic drop in capex in oil exploration and development, which has gone “from north of US$400Bn per year five to six years ago to just over US$100Bn per year. These supply-side concerns will probably drive prices higher.”
A Bank of America analyst agreed that oil could top US$100 per barrel in 2022. "There is plenty of pent-up oil demand ready to be unleashed," said Bank of America strategist Francisco Blanch.
Boosted by effective vaccines, the US summer travel season is expected to be busy, increasing demand for gasoline. Rystad Energy oil markets analyst Louise Dickson said “OPEC+ is already discussing, ahead of its scheduled meeting, to increase its output from August indicating the demand-supply gap is already becoming an issue and the alliance is working on a plan to tap that deficit.”
She added, “The OPEC+ chatter to raise supply is the most bearish risk for the recent oil price rally, which has been propelled on strong summer demand and an overall conservative supply environment.”
She said OPEC+ will likely loosen supply, either officially with a higher production target from August, or unofficially with compliance slippage even earlier.
The current target production level of 36.2M barrels per day (b/d) for July 2021 will likely be surpassed by at least 1M b/d of OPEC+ crude supply, and perhaps even more, as OPEC members see the demand-supply gap widening.
By August, Rystad expects global oil demand will have recovered to nearly 98M b/d from the current level of 95.3M b/d.
“The anticipation of the nearly 3M b/d ‘demand pop’ in the very near-term has brought Brent oil prices above US$75 per barrel. However, the ascent to mid-1970s oil prices has been sudden, so just how resilient the price curve structure is still untested,” said Ms Dickson.
Global jack-up drilling hits high
Global jack-up drilling continues to strengthen, this week reaching its highest level in 2021, led by increased contracted units in the North Sea, southeast Asia and the Middle East. Overall, there were 339 jack-up rigs contracted in week 25, according to Westwood Global Energy’s RigLogix.
One of the latest contracts reported was by Valaris, which won a three-year charter with North Oil Company offshore Qatar for offshore jack-up rig Valaris JU-110 that will commence in Q4 2021.
Deepwater drilling activity slipped during the week, with RigLogix reporting 113 floaters under contract, a fall of three from the previous week’s activity. Stena Drilling has signed a contract with Far Gambia Ltd to use the drill ship Stena Icemax for a one-well campaign for about 30 days, offshore Gambia. The contract will commence in the Block A2 between 1 October and 30 November 2021.
Riviera Maritime Media will provide free technical and operational webinars in 2021. Sign up to attend on our events page