BUSINESS

OIL PRICES UNLIKELY TO SUSTAIN ABOVE US$70

08/06/2021 12:37 PM

By Siti Radziah Hamzah

KUALA LUMPUR, June 8 -- The oil market is unlikely to sustain the current price level of above US$70 per barrel in the long run due to structural factors -- essentially, the energy transition and the large potential supply from non-Organisation of the Petroleum Exporting Countries (OPEC) sources.

Asia School of Business assistant professor of Business and Society, Dr Renato Lima de Oliveira expects oil prices to wildly fluctuate in the short run, depending on the strategy adopted by large oil producers and on government policies that promote the energy transition. 

"If we really move towards a net-zero emissions target by 2050 as announced by some countries and companies, we can expect a much lower oil price," he told Bernama. 

A recent study by the International Energy Agency forecast oil price to be at US$35 in 2030, US$28 in 2040, and US$24 in 2050 under a net-zero scenario.

de Oliveira said this year, oil prices recovered beyond most analysts’ predictions, alongside other commodities that recorded substantive price increases such as food crops like soybean and palm oil as well as metals like copper and iron.

He noted that the current mini-commodity boom was boosted by the fast economic recovery of some countries, like the United States (US) and China, and loose monetary policies by central banks. 

"Therefore, on the one hand, you get a genuine rise in demand for commodities from countries that are coming out of the pandemic and on the other hand, there’s cheap money chasing real assets as a protection against inflation. 

"Together, these movements help to explain the recent price surge in key commodities, including oil," said de Oliveira.

Oil futures rose to an over two-year high on June 2, buoyed by the optimistic outlook for global demand as events in Iran raised risks to supply stability. 

Brent, the international benchmark for two-thirds of the world’s oil, was trading 2.47 per cent higher at US$71.03 a barrel, while the US West Texas Intermediate crude futures gained 3.29 percent to reach US$68.50 per barrel.

The increase was also in line with the decision made by OPEC and its allies to stick to a timetable for the gradual easing of production cuts this month and next.

 de Oliveira said although OPEC has been losing importance in the global energy market, it still controlled about 40 per cent of the total oil supply. 

"In a historic agreement last year, member countries and other significant producers like Russia decided to remove about 10 per cent of all supply from the market.

“The agreement has been very effective in rebalancing the market, tightening the difference between supply and demand," he added, while noting that the high oil prices also increased competition from non-OPEC oil suppliers.

-- BERNAMA

 

 


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