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Lack of investment, more demand to drive oil price volatility - industry execs

Lack of investment, more demand to drive oil price volatility - industry execs
Lack of investment, more demand to drive oil price volatility - industry execs   -   Copyright  Thomson Reuters 2021   -  
By Reuters

<div> <p>By Roslan Khasawneh, Florence Tan and Sonali Paul</p> <p><span class="caps">SINGAPORE</span> – A lack of investment in new oil and gas supplies, amid a shift in focus to cleaner fuels, is likely to drive price volatility in the next decade as demand for traditional energy sources grows, senior industry executives said.</p> <p>Global energy investment saw its biggest fall on record https://www.reuters.com/article/us-iea-energy-investment-idUSKBN2330FF in 2020 when the <span class="caps">COVID</span>-19 pandemic hammered demand, while a push for energy transition to meet greener targets pulled more funds into renewable resources. </p> <p>The International Energy Agency (<span class="caps">IEA</span>) too has called on investors to stop funding https://www.reuters.com/business/environment/radical-change-needed-reach-net-zero-emissions-iea-2021-05-18 new fossil fuel projects to reach net zero emissions by mid-century, even as industry participants remain split on forecasts for peak oil demand https://www.reuters.com/article/uk-oil-demand-factbox-int-idUKKBN2870LA. </p> <p>Underinvestment in the global oil and gas sector could lead to tighter supplies at a time when demand is set to recover, senior executives at Vitol, Trafigura, Hess Corp and Equinor cautioned.</p> <p>“It seems likely that rather than falling, global oil demand is set to continue to rise as new markets and consumers emerge,” Ben Luckock, co-head of oil trading at Trafigura said at the annual <span class="caps">APPEC</span> 2021 conference.</p> <p>“That raises the prospect of potential cycles of higher prices for traditional forms of energy. </p> <p>“Whilst that might be beneficial to oil producers in the short term, it also means significant costs to the global economy which is in nobody’s long-term interest,” Luckock added.</p> <p><span class="caps">PRICE</span> <span class="caps">SPIKES</span></p> <p>A sharp rebound in global demand for energy, power and metals has already led to a supply crunch and a surge in prices. </p> <p>Gas prices in Europe and Asia are at or near record highs, while those in the United States are at seven-year peaks. Coal prices are at record levels and Brent breached $80 per barrel, highest since 2018. [O/R][LNG/]</p> <p>The Organization of the Petroleum Exporting Countries (<span class="caps">OPEC</span>) and its allies still have a cap on oil production, while a lack of investment has limited output from the group’s top two African producers.</p> <p>But the spare capacity may be challenged next year “if we do not see an accelerated pace of investment in the U.S. sector and … rapid rapprochement between the U.S. and Iran”, Vitol’s Asia <span class="caps">CEO</span> Mike Mueller said.</p> <p>He was referring to global talks to revive a nuclear deal with Tehran that could lead to more Iranian supplies https://www.reuters.com/world/middle-east/iran-stores-more-oil-tankers-it-counts-days-enter-markets-2021-06-21.</p> <p>Several executives said investment in fossil fuel sources was needed to avoid shortages and price swings.</p> <p>“We’re in a period where we have been investing too little coming back from <span class="caps">COVID</span>,” said Eirik Waerness, Equinor’s senior vice president and chief economist.</p> <p>“That is probably exacerbated by a lot of uncertainty regarding what the energy transition will be, so there will be a wait-and-see attitude here in terms of also going into new types of investment in the energy transition.”</p> <p>But it will take a long time before new energy sources can compensate for global demand, he added.</p> <p><span class="caps">DEMAND</span> <span class="caps">OUTLOOK</span></p> <p>Executives at the conference said they expect global oil demand to reach pre-pandemic levels by early next year https://jp.reuters.com/article/oil-appec-idAFL4N2QT0RN, in line with a bullish forecast from <span class="caps">OPEC</span>. </p> <p>BP and TotalEnergies expect oil demand to peak in the next decade https://www.reuters.com/article/uk-oil-demand-factbox-int-idUKKBN2870LA.[</p> <p>“Depending on where the climate-energy transition goes, there is probably peak demand laying out there somewhere,” said Greg Hill, Hess Corp’s president and chief operating officer. </p> <p>“I think it’s much further out than what a lot of the pundits are thinking right now,” he added.</p> <p>He noted that even in the <span class="caps">IEA</span>’s sustainable development scenario, oil and gas account for 46% of the global energy mix in 2040.</p> <p>“The world needs cheap affordable energy. We want to be in that space,” Hill said.</p> <p/> </div>