Analysis: An impending oil shock will hit the world

Despite the recent rises in oil prices in global markets since the beginning of this year, it does not seem that the rally has reached its end, as most observers expect the rise to continue and the world facing an imminent shock as a result of the lack of supplies, in exchange for an increase in demand for crude, according to the German news agency.
According to the analysis written by Sharon Chu, a specialist in energy affairs, and Skeet Sondria, the economic editor at Bloomberg News, the global oil market is heading towards a supply shock, with the decline in international energy companies’ investments in fossil fuel production projects and the increasing trend towards clean energy. Some analysts also believe that global demand for oil will not reach its peak until the next decade.
Greg Hill, operating director of Hess Corp, said during his participation in the Platts APEC 2021 forum in Singapore, that the total value of international oil companies’ investments in exploration and extraction projects fell to about $300 billion, less than half of the total annual investments before the outbreak of the pandemic. The new Corona virus, which was 650 billion dollars.
Energy companies face growing calls from shareholders and governments to increase their spending on clean energy and focus on a future less dependent on fossil fuels.
For his part, Saad Rahim, chief economic analyst at the global commodity trading group “Trafigura Group”, said during his participation in the same forum that started yesterday in Singapore, that “the oil industry as a whole is caught between divergent investment imperatives… For the near future, the world’s need is likely to continue. For more than 90 million barrels per day, the question is: How can we find the required investments in order to produce this amount” of crude.
Rahim added that the oil industry has been suffering from a “structural lack of investment” and insufficient capital spending since the outbreak of the global financial crisis in the last quarter of 2008.
It is noteworthy that oil prices rose during the current year by more than 50 percent, with the expansion of vaccination programs against the emerging “Corona” virus, which allowed many countries of the world to ease restrictions on movement that were previously imposed to prevent the spread of the virus.
At the same time, global stocks of crude oil and fuel fell to pre-pandemic levels, raising the price of benchmark Brent crude for global markets to about $ 80 a barrel, despite the slowdown in China’s economic activity and the decline in spending as a result of domestic restrictions.
For his part, Giovanni Sirio, head of the Global Market Analysis Department at the Swedish energy group Vitol Group, said that the rise in international oil prices is mostly focused on spot contracts, while the final level of the futures price curve is still relatively low.
This has led to a decline in the flow of financial investments towards long-term projects, also known as mega projects, which include pumping larger amounts of investments and risks with long-term returns. Meanwhile, US shale projects that could fall into the short-term category have shown discipline in oversupply despite rising prices.
It is expected that prices will continue to rise in light of the inability of supplies to meet the rapid increase in demand, according to Ben Lowcock, co-head of the oil trading sector at the Trafigura Group. The statements coincided with a report by the American investment bank (Goldman Sachs Group) that expects Brent crude prices to rise to $90 a barrel by the end of this year, because the market’s supply deficit compared to demand was greater than what most analyzes indicated.
As for Ryan Fitzmauris, a commodity market expert at Rabobank, he says that there is a strong possibility that oil prices will continue to rise in the coming weeks, with speculators buying in order to take advantage of the upside trend and not miss the opportunity to achieve amazing returns on their investments.
Giovanni Sirio, who expects global demand for oil to reach its peak in the next decade, says that the effects of the lack of investments in oil exploration and extraction projects are likely to appear soon, with increased energy consumption as a result of the effects of economic stimulus packages, easing monetary policy and lifting restrictions on movement and travel.
Crude oil prices are also rising in light of indications of a sharp decline in global stocks, with increased demand before the entry of winter, and the movement of the “OPEC Plus” grouping of oil countries towards increasing their oil production.
Trafigura Group says that while traders anticipate a large deficit in the global oil market, prices for longer-term contracts are still cheap, hovering around $70 a barrel. At the same time, the so-called “difference” that measures the strength of the market has risen sharply in recent weeks, which is an additional indication that the outlook for traders is positive.
Finally, analysts at Goldman Sachs, including Damien Corvalin, say in a report to clients, that it is unlikely that the market deficit will decrease in the coming months, because in their view it will be greater than the desire and ability of the OPEC Plus countries to bridge it.