Fossil fuels will continue to be part of energy mix
Crude oil and coal are not going anywhere anytime soon, according to pricing agency S&P Platts, even as there is more focus on renewables and low-carbon alternatives
Spare crude oil capacity is getting tighter given a rise in security risks, says Platts analyst, while inventories are low amid a resurgence in demand from refiners. That is what is leading to the high oil prices
CRUDE oil and coal will continue to be important components of the future energy mix, according to pricing agency S&P Platts.
“The oil industry will still be here — do not write it off,” Dave Ernsberger, global head of pricing and market insight, told an International Energy week event in London. The current rise in oil prices has been linked to the demand recovery outpacing supply last year, which led to an erosion of inventories at a “record pace,” he said.
Geopolitics has also played a role and “serve as a stark reminder” of how important fossil fuels are to the global economy, he said.
Supply of oil will be “a headline theme” in the coming months, according to crude oil analyst Iain Stevenson.
While demand from European refiners has increased, as seen in the number of crude loadings, there are growing concerns about supplies from Russia, where the Urals grade is dominant, he said.
Urals is currently trading at a $4.50 per barrel discount to Brent crude versus a discount of $0.60 previously. Similarly, Azeri light sweet crude is trading at a premium of $8 per barrel to Urals, which is the widest in over a decade, as speculation swirls about events in Ukraine and any potential sanctions against Russia that might weigh on the market.
Spare capacity is also tightening, dropping to almost 2m barrels per day overall, due to geopolitics and underinvestment in the oil sector given the transition to cleaner energy, said Herman Wang, managing editor of news related to the Middle East and the Organisation of the Petroleum Exporting Countries.
And that is before any potential risk relating to sanctions against Russia are factored in.
However, a potential lifting of sanctions on Iran may provide support, with an increase of some 500,000 barrels per day in the near term, some of which would come out of floating storage, he said. In the longer term, 2m bpd of swing production is at stake.
The US may push for a deal in order to push down oil prices given rising inflation, mid-term elections coming up, and faltering US production, he added.
Iranian oil, which is heavy-medium sour, will be competing with crude from Saudi Arabia, Kuwait, Oman, Iraq, Russia and Venezuela, leading to intra-Opec competition.