Sopuruchi Onwuka

Global energy analysts and industry leaders push strong opinions that crude oil prices would sustain its current strength despite pointers to geopolitical tension and cold weather in northern hemisphere which are traditional transient drivers.

Industry consultancy groups, opinion leaders and even multinational oil majors are beginning to align with the position of the Organization of Petroleum Exporting Countries (OPEC) that rising global population and irreversible urbanization would continue to drive demand and prices.

Head of Oil Markets at Rystad Energy, Bjørnar Tonhaugen, reported Tuesday that The oil market is not as exceptionally tight as the price premiums suggest now. He said that prices are riding on the prediction of future near-term tightness around March and April.

He pointed out that fuel demand has seen a down-tick in early February as global road and aviation activity falls, predominantly owing to China and the Lunar New Year holidays and start of the Olympics.

Mr Tonhaugen said most other regions are seeing an upwards trend in road traffic, with the exception of Russia, which together with Omicron news flow gives credence to expectations of a demand increase into March and April as well.

The soaring oil prices above seven year highs in the face of winter storms across the world’s cold weather regions, he noted, might hit $100 per barrel in the short run.

He pointed at potential price busters including a possible spike in Omicron cases as downward risks that could pose setbacks on demand. Other demand risks, he pointed out are economic growth concerns and financial market corrections as the central banks fight inflation.

Tonhaugen said OPEC production caps have created artificial production constraints among key producers from the Middle East where, he said, huge suppressed production capacity still exists. He also pointed at weakening production capacity and disruptions in other OPEC countries.

On Nigeria, he pointed out that although the Trinity Spirit FPSO explosion did not impact production it provides a stark reminder of the vulnerability of supply installations “especially in outage-prone countries such as Nigeria.”

He said Ukraine-Russia tensions remain a market supply risk as the presence of US troops in Eastern Europe, any supply disruptions or sanctions on Russian flows may add to the risk premium in oil prices.

Veteran strategist David Roche predicts stronger oil prices in the event of war in Eastern Europe, telling secondary sources that oil will “certainly” hit $120 a barrel and the global economy will be “radically altered” if Russia invades Ukraine.

According to him, “if there was an invasion of Ukraine and there were to be sanctions which impeded either Russia’s access to foreign exchange mechanisms, messaging systems and so on, or which prevented them from exporting their commodities, either oil or gas or coal, I think at that point in time you would most certainly see oil prices at $120 [a barrel].”

Brent crude oil contracts for April delivery were trading slightly lower at around $90.50 per barrel on Wednesday, but oil prices have seen steady gains since the beginning of the year, when they were trading below $80 a barrel.

However, other analysts including the Secretary General of OPEC, Dr Mohammed Barkindo; the Chairman of AA Holdings, Mr Austin Avuru; the Executive Director of Hobark International, Dr Emmanuel Okoroafor; and the Group Managing Director of Nigerian National Petroleum Company Limited, Mallam Mele Kyari; had maintained that oil prices will remain strong not just from geopolitical disruptions. They insist that demand would continue to rise with the need to provide a rising and urbanizing population with energy and other living facilities.

Dr Barkindo stated that the additional 1.8 billion in global population would push oil demand far higher than the current estimate of 100 million barrels per day even in the long term after green energy is fully integrated into the mix.

Mr Avuru posits that demand for petroleum energy would remain strong until the existing global reserves have been exhausted; pointing out that petroleum is a finite resource that has faced sustained depletion against rising population and associated energy demand.

Dr Okoroafor stated that all forms of energy would remain in strong demand and costly as long as the global population growth remains unchecked. He said that the pressure on earth’s finite resources would continue to generate demand for all forms of energy from a rising population.

Industry players also think that demand would continue to drive prices in the short to medium term despite energy transition and predictions of demand burst.

The Chief Executive of French multinational energy firm, TotalEnergies, Mr Patrick Pouyanne, stated on Wednesday that the prevailing strong prices of oil and gas would not be a flash.

He said the recent rally in oil prices and the higher energy, power, and gas prices, especially in Europe would remain high for a while as low investments in new developments tightens market supplies.

He said the inverse relationship between growing global oil demand and suppressed investment in new production would keep oil prices elevated.

He declared in a radio programme in France that rising energy bills on homes and families informed the decision by TotalEnergies to hand out 100 Euro vouchers each to low income families to enable them pay energy bills.

Pouyanné’s view that oil prices will remain high is shared by a large number of other industry executives, as well as analysts given the shrinking global spare production capacity and “worrisome” inventory levels.

Global oil trading factor, Vitol, stated that the situation could push oil prices even higher: and Bank of America holds that it is still possible for crude oil to reach $100 per barrels in the year.

Major Wall Street banks, including Goldman Sachs, Bank of America, JP Morgan, and Morgan Stanley, expect prices to hit $100 a barrel as soon as this year, according to reports reviewed by The Oracle Today.