Oil and energy strategist, Dr. Yussif Sulemana has indicated that, the projected increase in demand for crude oil will still result in the spike in fuel prices locally.
His comment comes on the back of the projected increase in demand for crude oil in the second quarter of the year by the International Energy Agency (IEA).
Speaking with the Vaultz News, he averred that, certain factors which he referred to as bullish sentiments causes an upward adjustment of crude prices and bearish sentiments causes a dip in oil prices and as a result, the impact is felt both internationally and locally.
Speaking on the sentiments, he referred to the vaccine as one of the major factors which will cause an increase crude oil prices across the world since it will enable people travel causing an increase in aviation fuel consumption.
“Vaccines have been rolled out and the efficacy level is promising. So, as long as the vaccines are effective, travelling confidence will be high. There will be some strong rebuilding of confidence and people will begin to travel. Business travel will begin to pick up and aviation fuel will be consumed.”
Dr. Sulemana identified the vibrancy in Asian markets as another factor accountable for the current pricing attributing it to the fact that their consumption has increased.
“If you look at the Asian economies as we speak particularly China, their consumption, even till the end of 2020 was so much, it increased by 18% unprecedented. Even though with how the second wave is causing many economies to struggle, China’s consumption had increased and China is the largest global consumer of crude oil in the international market after US. So, China, India and Japan are not doing bad and it looks like they have been able to manage this virus creditably.
“And so, the consumption that is robust in these areas coupled with the roll out of vaccines, are accountable for the current price we have in the international market.”
Additionally, he said the third component is the OPEC+ and OPEC agreement. He explained that, the understanding between OPEC and OPEC+ members, where they agreed to cut the supply component to the world market coupled with the vaccine roll out and then the robust consumption in the Asian economies forms part of what accounts for the current price rally.
“Remember OPEC and OPEC+ had agreed by first quarter of 2020 to take out about 9.7 million barrels per stream from the global basket and that cut has been sustained up till now. So, as we speak now, there has been consistent meetings on monthly bases between OPEC and OPEC+ members.
“So, until OPEC and OPEC+ members agree to ease up these cuts, we are going to continue to see these bullish sentiments.”
Dr. Sulemana also posited that, looking at the components, there is every chance that demand is going to increase. He further said that the only component that could halt the current price rally will be the US Shale patch, because it has been the only counterbalancing force that had nullified OPEC dominance in the past especially, during the pre-covid era.
“However, after COVID collapsed the market, OPEC is gradually stamping its authority on the market and we are beginning to see OPEC coming back to take control. And usually when OPEC is in control of the market, they are able to twist the market to favour the bullish sentiments.
“So, until OPEC cuts are nullified by a potential US SHALE resurgence to drop prices; we may not see a reduction in oil prices in the short term.”