With the pandemic receding throughout Western nations, oil demand is improving, Pearce Hammond, Sr. Research Analyst, Simmons Energy, A Division of Piper Sandler, told Council members during a virtual market outlook seminar with CEO Leslie Beyer. Uneven vaccine rollouts and the inability of India and Brazil to control outbreaks is likely to suppress a fully recovery until 2022, Hammond said.
Uncertainty around business travel, and lower mobility due to work from home options create further uncertainty and suggest that future demand for oil is subject to persistent headwinds, according to Hammond.
U.S. production is important in the market, but is unlikely to return to its recent peak, Hammond said. He anticipates America will return to 11.5 million barrels per day.
“U.S. oil production is going to grow, but it’s going to be more subdued going forward,” Hammond told attendees. “Our thesis on crude oil is that it’s part of the broader economic recovery we’re seeing. We think we’ll see tightening markets as demand improves and the industry maintains its capital austerity. That will grow the need for a non-OPEC reinvestment cycle commencing next year, if not sooner.”
Beyer and Hammond delved into energy transition and the role of energy service and equipment companies as technology enablers. The transition to decarbonized energy production is being pushed by governments and pulled by investors, large companies and consumers, Hammond said.
“The bottom line is this energy transition is a massive shift,” Hammond said. “We’re starting from 85% fossil fuel use so we’re going to continue to use fossil fuels are many years in the future.”
Hammond believes the natural gas outlook is strong over the next few years. “It’s the most advantaged of the fossil fuels as we roll through the energy transition,” he said.
The role of petrochemicals and the traditional oilfield services and equipment in the energy transition is significant through supply chains, know-how and technologies. Hammond shared examples of how carbon capture technology is being deployed in commercial facilities and the increased investment in hydrogen technology.
Concluding the outlook, Hammond and Beyer discussed the Biden Administration’s policies and goals.
“We have a very active president and administration,” Hammond said. “They want to put a lot of wind in the sails of the energy transition and put a lot of headwinds on conventional energy.”
Hammond warned that companies should remain cautious with oil as demand recovers.
“The big thing to watch on oil is once we get past that pent-up demand phase is that demand is going to slow down,” he said. “The energy transition is real — it’s not going away. So, people have to plan. And I’ve been very impressed with how aggressive the industry has been addressing ESG and embracing the energy transition. More and more companies are saying this is an opportunity for us to do well and do better.”
The Council holds market outlooks quarterly and additional insights can be found in the weekly newsletter.
Maria Suarez, Director Government Affairs, writes about industry-specific policies for the Energy Workforce & Technology Council. Click here to subscribe to the Council’s newsletter, which highlights sector-specific issues, best practices, Council activities and more.
