Oil optimism could be derailed by coronavirus risks, Dan Yergin says - CNBC
BY Weizhen Tan
- Oil producer group OPEC has left its 2021 forecast for crude demand growth unchanged on expectations of an economic recovery.
- Energy expert Dan Yergin, however, cautioned that oil demand would depend on how the virus situation develops.
- â€œIf the coronavirus turns out to be the surge continues … if the vaccines were not as effective as thought, then youâ€™d be back in weaker demand, and that would show up in price. But clearly there is optimism in the oil price,â€ he told CNBCâ€™s â€œSquawk Box Asiaâ€ on Friday.
Oil prices are out of the â€˜virus alleyâ€™ and set to recover in 2021, Dan Yergin says
SINGAPORE — Oil producer group OPEC left its 2021 forecast for crude demand growth unchanged on expectations of an economic recovery. But that could change, warns energy expert Dan Yergin.
Yergin, vice-chairman at IHS Markit, told CNBC on Friday that a lot hinges on how effective the coronavirus vaccines are, and whether the number of Covid-19 cases continue to surge.
Hopes of increased oil demand were also lifted on Thursday when U.S. President-elect Joe Biden released a hefty $1.9 trillion Covid-19 rescue package designed to support households and businesses.
In addition to the stimulus package, two factors have also fueled optimism, Yergin said. â€œThere are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.â€
â€œThe other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus thatâ€™s occurring,â€ he said.
If the vaccines were not as effective as thought, then youâ€™d be back in weaker demand, and that would show up in price. Dan Yergin VICE-CHAIRMAN, IHS MARKIT
OPEC members and their non-OPEC allies, an alliance referred to as OPEC+, cut oil production by a record amount in 2020. They did so in an effort to support prices, as Covid-19 restrictions worldwide and the subsequent plunge in air travel led to a fuel demand shock.
Saudi Arabia, the worldâ€™s largest oil exporter, has since said it plans to cut output by an extra 1 million barrels per day in February and March to stop inventories from building up.
Yergin said both the vaccine rollout and the supply cuts have come together to â€œcarry oil prices out of what I was calling the virus alley and looking to recover in 2021.â€
Oil prices are currently on pace for their third consecutive week of gains. U.S. crude was at $53.08 on Friday during Asia time, up from above $48 per barrel end December, while Brent crude was at $55.69 on Friday, as compared to above $51 end December.
OPEC said it expected global oil demand in 2021 to increase by 5.9 million barrels per day year-on-year to average 95.9 million barrels per day. The forecast was unchanged from last monthâ€™s assessment.
In a report on Thursday, it said its 2021 forecast assumes â€œa healthy recovery in economic activities including industrial production, an improving labour market and higher vehicle sales than in 2020.â€
Yergin, however, cautioned that oil demand would depend on how the virus situation develops.
If the coronavirus surge continues and â€œif the vaccines were not as effective as thought, then youâ€™d be back in weaker demand, and that would show up in price,â€ he told CNBCâ€™s â€œSquawk Box Asiaâ€ on Friday. â€œBut clearly there is optimism in the oil price.â€
â€˜Second revolutionâ€™ for U.S. shale
The time has come for the â€œsecond revolutionâ€ for U.S. shale producers, Yergin said. The industryâ€™s drilling boom had catapulted America to the position of the worldâ€™s largest oil producer in 2018.
â€œThis is the second revolution for shale, which is to give money back to investors. (Theyâ€™re) in better shape to do that. Now youâ€™ll see consolidation, youâ€™ll see continued effort to bring down the cost,â€ he said.
â€œSo I think we will see U.S. shale start to creep up again in production in the second half of this year,â€ he said, adding the caveat that there are no negative coronavirus scenarios.
Still, it is still unclear what Bidenâ€™s energy policies could mean for the U.S. shale industry.
In December, U.S. Energy Secretary Dan Brouillette warned that U.S. shale producers should be worried about a â€œvery aggressiveâ€ climate policy that will happen with the incoming Biden administration.
Biden may not ban fracking, the fossil fuel extraction process by which shale gas is produced — but he would aim to significantly stifle it with regulation, many analysts say.
— CNBCâ€™s Sam Meredith, Natasha Turak and Patti Domm contributed to this report.