Oil at $80-100/b, demand at 110m bpd: trading house bosses have their say

London, (Quantum Commodity Intelligence) – There is only one way for crude oil prices to go as demand will surge another 10% over the course of the next nine years despite an energy transition that will erode consumption over time.

That's the view of four bosses of some of the world's biggest, and until relatively recently, secretive commodity trading houses.

Speaking at the FT Commodities Global Summit on Tuesday, the leaders of Vitol, Trafigura, Mercuria and Glencore gave the virtual summit an insight into some of their thinking around the future value of oil, demand destruction and the shift to a cleaner world.

The picture given was very much bullish for oil demand and prices in the near term, with even demand for coal – the most carbon-intensive fossil fuel – set to increase over as a drive for cheap, reliable energy in the developing world will take precedence over renewables.

$80-100/b

On oil prices, Russel Hardy, the head of private trading house Vitol, said he expected oil prices to move from $70 to 80/b this year – a forecast that does not stray from recent projections made by Goldman Sachs and other analysts who predict sluggish supply will be outweighed by a global economic recovery.

That figure, according to Jeremy Weir, CEO of independent trading house Trafigura, could rise to $100/b, largely on a lack of investment in upstream.

"We have gone from 15 years of oil reserves to 10 years and capital expenditure go from five years ago $400 billion a year to just $100 billion," he told the summit.

And while the head of London-listed trading giant Glencore – Alex Sanna – did not give a figure, he predicted that the return of more Iranian barrels later this year – perhaps September according to Vitol -  was already priced into the market, where Brent futures are currently trading at $73/b.

The head of Mercuria - Marco Dunand - said he expects Iranian supply to reach 3.5 million bpd, if a nuclear deal can be reached that would allow Iranian barrels to grow.

That compared with around 1-1.3 million bpd for crude and products currently.

Move to NOCs

With oil majors under pressure from investors to drive down emissions and reposition for a future in cleaner, greener energy, capital investments are likely to be driven by state-owned oil producers, and that means OPEC having a greater share, according to Glencore's Sanna.

That is a view that was put forward by the IEA last month, which predicted the producer group's share would rise from 37% currently to 52% over the next two decades, as industrialised nations accelerate towards renewables and electrification of the car fleet.

But that isn't likely to happen over the next decade, with oil demand set to rise from 97 mpd currently to 100-110 million bpd around 2040, according to Vitol's Hardy, who said his company would continue to invest in oil.

After 2040, there would be a sharp decline in demand, he said.

Prior to that, he said he expected oil demand to reach pre-pandemic levels within two years.

"Gasoline will catch up to pre-COVID levels in Q4 this year, diesel is there already, aviation fuel demand is a long way behind while petrochemical is already ahead of 2019 levels."