During the last few months the price of oil has been rapidly increasing, affecting not only fuel prices but also the cost of living as a whole throughout America.
We spoke with Josh Spencer, an operations scheduler for fuel oil with one of the major oil and gas companies to discuss his expectations for the oil price and market in the coming months. Given the remarks below only represent Josh’s personal perception of the current state of the market and not necessarily those of his employer, we have omitted the name of his firm to avoid confusion.
Oil demand is rising and we can see that on gas prices. What do you think are the main factors driving the oil price in America?
There are a few things going on. There was a ransomware attack a few weeks back, that shutdown the Colonial pipeline, limited the oil supply in much of the east coast and forced prices up. That’s a temporary type thing we are starting to get past right now.
The main thing right now is what is going with the OPEC + (The Organization of Petroleum Exporting Countries plus other oil producers countries like Russia), they are trying to maintain production cuts in order to boost the oil price.
The thing that is counteracting right now is what is going to be happening with Iran. We have the Iran deal, Donald Trump pulled the US. out now Biden is considering getting back in, if that’s the case some of the sanctions might be removed which potentially will allow Iran to put their oil in the international market and more supply will push the prices down.
Latest thing that I saw on the Iran deal is that they hit roadblocks, it doesn’t look that is going to happen as quicky as they thought. If that is the case that means less supply in the market further going and pushing the price up. OPEC themselves are figuring what to do, because they are going to have to go and change their productions cuts and stuff based on that.
Do you expect the oil price will be sustained for the rest of 2021?
I would expect that the oil price is probably going to go and stay above $60 for the rest of the year. Who knows what’s going to happen? But on its current trajectory what you are seeing is that the US. economy is booming, I think they revised upwards their stimates for the GDP this year to 6.8 % growth, that is the biggest growth we have seen in decades.
Obviously with more growth comes more consumption fuel, more demand pushes the prices up. Same thing with the UK, UK is starting to open back up. Basically the main factor here is what happens with Covid.
If Covid continues to be brought under control, as result of vaccinations, you are going to see the economies opening up, demand increasing which is going to push the price of fuel up. Now, if something happens, like an India type situation happening in some of the major economies of the world before they got fully vaccinated that will lead to new lockdowns and shutdowns which is going to decrease demand and push the price down. But under the current trajectory we can expect oil price staying at a relatively high level.
Some people say that the FED will have to raise interest raise sooner, could that affect future oil price?
There is a few things going on with the FED. Right now the FED has said they don’t foresee any changes. That being said we are all aware that inflation is becoming more of a concern and we have seen in the most recent data that has come out that monthly inflation is some of the highest that we seen, since 2008.
That’s overall inflation, core inflation isn’t as concerning and a lot of these things that are showing up in these inflation statistics might be anomalies simply because we are comparing to 2020, which obviously things were incredibly depressed as a result of Covid. So that’s not necessary an accurate indicator of were the prices are going to be.
However we also know that we have seen tons of stimulus packages through all the world and specially in the US., not to mention tons of quantitative easings, basically printing money, that hasn’t caused inflation yet, but we also know it has the potential to do it.
If it turns out these inflation is not temporary you can bet that the FED will raise interest rates. i think it is too early to say right now, because we need to see for a few more months, if we continue to see that inflation interest rates will get raise and that’s going to slow the economy and potentially will low down the oil price.
In their last report BP said the world has reached a peak in its oil supply capacity. What do you think of that statement?
Shell specifically has said they have reached peak production, not because they are not able to produce more, they are choosing not to invest more in exploration and production, 2019 was their peak of production year, they never anticipate to produce more than that going forward.
I think that is not the case with other companies. Exxon and Chevron are still going to be pouring money into exploration and production. I think is really hard to say because we are still coming out of such an unprecedented time period. Covid is an statistically anomaly, that’s not normal, so any type of data that we are looking at right now is not going to be indicative of what things are going to be like in the next few years.
Honestly a lot of the predictions about the end of the oil industry are premature. Ultimately you are going to see developed economies continue to move to more renewable energy sources, but the same thing is not going to happening nearly as fast in China, India, Brazil, Russia and all of these places that have more potential for growth than the developed economies.
Any developed economy ended up being developed because they have access to cheap fossil fuels and I don’t think these other countries that are developing and trying to get their developed status are going to say ” no will just pay for these more expensive stuff”, they are not going to do it, their main focus is on economic growth not the environment.
Is oil industry shifting towards renewables?
It depends on the geography of where the company’s headquarters are. The European HQ companies like BP, Shell and Total SE they are activel
ly moving away from crude oil and towards natural gas, because even if is still a fossil fuel it is a lot cleaner than crude and the are using that as bridge to move towards renewables.
You haven’t seen the same thing from American HQ companies the Chevron’s and Exxon’s, they want to build their renewable business but they are not planning to make the transition near as quickly as European counterparts. There is a company, Oxy, that specifically said that rather than focusing on becoming a renewable business they are working up building their carbon capture business. So there are different kind of strategies that are starting to play out in the market.