Energy markets expert and commentator Vandana Hari is back to QuickHit, to talk about crude oil. This is hosted by Complete Intelligence: https://www.completeintel.com
Brent is nearly at the $70 psychological mark and is also a 2-year high. However, demand has not picked up to the pre-Covid levels. Vandana explained what happened here and what to look forward to in the coming year. Also, is crude experiencing supply chain bottlenecks like in lumber and other commodities and how oil demand will pick up around the world?
Vandana Hari is based in Singapore. She runs Vanda Insights and have been looking at the oil markets for about 25 years now. She launched Vanda Insights about five years ago. The company provides timely, credible, and succinct global oil markets, macro analysis, mostly through published reports.
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This QuickHit episode was recorded on May 19, 2021.
Show Notes:
1:32 TN: We look at where crude is today, it’s something like two-year highs today. And we’re consuming about five or six million barrels less per day than we were pre-Covid. Is that about right?
2:08 VH: ICE Brent Futures failing to settle above 70 dollars a barrel. But it has settled a couple of times so far this year, just below, which was two-year highs. So why are prices going to two-year highs?
So two fundamental reasons. If you talk about supply and demand in the oil markets, the first one is the OPEC – Non OPEC Alliance is still holding back a substantial amounts of oil from the markets.
The second one is demand has been picking up as countries are starting to cautiously emerge out of Covid-related restrictions. Economies are doing better. So oil consumption is moving up.
Brent was a two-year highs because of a forward looking demand optimism.
5:10 TN: Into other areas like lumber and with other commodities, there have been processing issues. But with crude oil to petrol, it’s not the same. Refineries are doing just fine. Why is that?
6:08 VH: I would say look at it in terms of commodities. And I would sort of lump metals and to some extent agricultural commodities in this one Group A and Group B.
Group B, which is oil. Well, crude oil and refined products, to a large extent, the prices are being propped up by OPEC, plus keeping supply locked out of the markets. It’s very different from what’s happening in metals and ags and these kind of commodities where it just can’t be helped.
The commonality here is all of these are seeing demand rebound.
You can assess what might be the prices of these commodities going forward. They may remain elevated, but it would be wrong to draw a parallel between that and oil, because in oil, I do believe OPEC non-OPEC are waiting.
8:07 TN: So let’s say we do see demand kind of come back gradually in the U.S., a little bit slower in, say, Europe. But China is moving along well and say Southeast Asia, east Asia is coming along well. The supply from the OPEC countries will come on accordingly. Is that fair to say?
9:10 VH: Absolutely. And when you talk about demand, again, I think there’s a sort of a bias in the crude futures markets, which tend to be leading the direction for the oil complex in general.
The other thing about the US is you have good data, right. Daily, weekly data. So that continues to prop up the market.
Sitting here in Asia, no country is opening its borders in Asia. The borders are sealed very, very tight.
There is a travel bubble between New Zealand and Australia.
And then you have Europe, which is reopening very cautiously, though.
11:19 TN: Do you see this trading in a range for the next three or four or five months? So there’s not too much of a shortfall for market needs as kind of opening up accelerates?
11:49 VH: We need to overlay that with our experience of this pandemic, the past one and a half years. Somehow, we’ve had a few false dawns, unfortunately, during this pandemic.
Again, I think we need to be very, very cautious. I think there’s going to be a lot of stop, start, stop, start.
The other thing I see happening is that it’s almost like, I imagine the virus sort of it’s moving around.
The other important thing to keep in mind is vaccinations is very, very uneven.
So we’re probably going to see maybe a bit of start. Stop. Definitely. And then, we have this OPEC oil and then, of course, we have Iranian oil. So there’s plenty of supply.