Dan Yergin on Oil Demand Forecast Amid Covid-19 Vaccine Deployment, Case

SINGAPORE – Oil producer group OPEC has left its crude demand growth forecast for 2021 unchanged amid expectations of an economic recovery. But that could change, warns energy expert Dan Yergin.

Yergin, vice president of IHS Markit, told CNBC on Friday that a lot depended on the effectiveness of the coronavirus vaccines and whether the number of Covid-19 cases continued to rise.

Hopes of increased demand for oil were also raised on Thursday when US President-elect Joe Biden released a major $ 1.9 trillion Covid-19 rescue package designed to support households and businesses.

In addition to the stimulus package, two factors also fueled optimism, Yergin said. “There are two other things that go with it… one of course is the vaccinations – in the sense that eventually this crisis is going to end, and maybe in the spring the lockdowns will be over.”

“The other thing is what Saudi Arabia has done. This is the third time Saudi Arabia has made a sudden policy change in less than a year, and this one was to announce (the) 1 million barrels a day – in part because they are worried about the impact of the virus outbreak that is occurring, ”he said.

Members of OPEC and their non-OPEC allies, an alliance called OPEC +, cut oil production by a record amount in 2020. They did so in an effort to support prices, as restrictions on oil Covid-19 around the world and the subsequent drop in air travel has led to a fuel demand shock.

Saudi Arabia, the world’s largest oil exporter, has since announced plans to cut production by an additional million barrels per day in February and March to prevent stocks from building up.

Yergin said the vaccine rollout and supply reductions have combined to “take oil prices out of what I called the virus lane that I was looking to recover in 2021.”

Oil prices are currently keeping pace for their third straight week of gains. U.S. crude was at $ 53.08 on Friday Asian Time, down from over $ 48 a barrel at the end of December, while Brent was at $ 55.69 on Friday, from over $ 51 at the end of December.

OPEC said it expects global oil demand in 2021 to increase by 5.9 million barrels per day year-on-year to an average of 95.9 million barrels per day. day. The forecast was unchanged from last month’s assessment.

In a report released Thursday, he said his forecast for 2021 assumed “a healthy recovery in economic activities, including industrial production, an improvement in the labor market and higher vehicle sales than in 2020.”

Yergin, however, warned that demand for oil would depend on how the viral situation develops.

If the coronavirus outbreak continues and “if the vaccines weren’t as effective as thought, then you’d be back in weaker demand, and that would show in the price,” he said. Friday at CNBC’s “Squawk Box Asia”. “But there is clearly optimism in the price of oil.”

The time has come for the “second revolution” for American shale producers, Yergin said. The industry’s drilling boom catapulted America to the rank of the world’s largest oil producer in 2018.

“This is the second revolution for shale, which consists of giving money back to investors. (They’re) in better shape to do it. Now you will see the consolidation, you will see continued efforts to reduce costs ”. he said.

“So I think we will see US shale production start to rise again in the second half of this year,” he said, adding that there was no negative coronavirus scenario.

Still, it’s still unclear what Biden’s energy policies might mean for the U.S. shale industry.

In December, US Energy Secretary Dan Brouillette warned that US shale producers should be concerned about a “very aggressive” climate policy that will come about with the new Biden administration.

Biden may not ban hydraulic fracturing, the fossil fuel extraction process by which shale gas is produced – but he would aim to significantly stifle it with regulation, many analysts say.

– CNBC’s Sam Meredith, Natasha Turak and Patti Domm contributed to this report.