As major economies across the globe emerge from the doldrums of the pandemic and travel surges, oil prices could further spike and reach $100/bbl by next year, according to the most bullish Wall Street forecast yet this year.
It could also mark the final surge in oil prices, however, as pressure intensifies on energy companies and governments to transition away from fossil fuels, oil in particular.
While the current bull cycle should boost oil export revenues for Mexican state oil company Petróleos Mexicanos (Pemex), the firm is poorly positioned to capitalize on the trend relative to its peers, according to independent energy analyst Rosanety Barrios.
For one thing, Pemex imports most of the petroleum products it sells, Barrios told NGI’s Mexico GPI, and the prices of these products move in lockstep with those of crude. Mexico’s imports of refined products are averaging 567,000 b/d so far this month, the highest volumes since December 2017, ClipperData analysts said Wednesday.
Mexico crude exports, meanwhile, are averaging 1.21 million b/d, they said, the strongest monthly pace since August. Most of those volumes head to refineries along the U.S. Gulf Coast, which are equipped to process Mexico’s Maya heavy oil blend.
Another challenge for Pemex, Barrios said, is the government’s insistence on increasing refinery output from Pemex’s own downstream unit, a perennial lossmaker for the state-owned firm.
Pemex “loses a scandalous amount of money” in the Mexican refining segment, Barrios said. She cited that around 30% of each barrel of oil refined by Pemex becomes high-sulfur fuel oil, which sells for less per bbl than the oil used to produce it.
Yet another problem stems from Pemex’s declining portfolio of upstream assets, she said, citing that Pemex depends on just six fields for over 50% of its production.
Of these six, three shallow-water fields – Ku, Maloob and Zaap – account for 39% of Pemex production, and all three are in the declining phase.
While high oil prices are undoubtedly good news for Pemex’s upstream unit, “it has no way to take advantage of it with greater production,” she said.
What’s more, Barrios said, Pemex is struggling to pay its debt due to insufficient cash flow and will face increasingly difficult access to capital from climate-conscious lenders due to its lack of progress on environmental, social and governance (ESG) initiatives.
A Shot in the Arm
Oil prices slumped in 2020, hampered by demand destruction due to coronavirus outbreaks and restrictions imposed to blunt the pandemic. However, inoculation campaigns across the United States and major economies in both Europe and Asia – including China – have proven successful and economic activity is quickly rebounding.
Bank of America Corp. (BofA) analysts said this week an accompanying spike in travel this summer and into next year should put upward pressure on oil prices, with Brent crude potentially peaking at $100/bbl in 2022. The analysts expect consumption of travel fuels derived from oil – gasoline and jet fuel – will outstrip supply in the second half of 2021 and continue to do so early next year.
BofA energy analyst Francisco Blanch cited “plenty of pent-up oil demand ready to be unleashed.”
Brent oil futures for August delivery gained 38 cents to settle at $75.19/bbl on Wednesday, while the West Texas Intermediate August contract added 23 cents to settle at $73.08/bbl.
Blanch noted that even as demand rises, U.S. production is only inching back up. Global output remains well below pre-pandemic levels and will take several months to climb back. The supply/demand imbalance should support a continued upward trend in prices, he said.
The Organization of the Petroleum Exporting Countries and its oil-producing allies, aka OPEC-plus, are currently adding more than 2 million b/d into the market. The process started in May and is scheduled to carry through July. The group, however, expects global oil demand to increase by about 6 million b/d in the second half of this year, exceeding supply growth.
Boston Consulting Group (BCG) analysts, meanwhile, agreed in a June report conditions are ripe for an oil price boom. But they said it could mark the beginning of the end for crude’s heyday.
Higher oil prices incentivize consumers to moderate oil consumption and switch to low-carbon energy sources. Oil producers are also under intense pressure to shift away from crude and make low-carbon investments, the BCG team said.
Energy transitions are already underway around the globe as government policymakers and companies seek to curb emissions and tackle climate change. This will soon slow the rate of growth in demand, the analysts said.
“The impact of this next, and likely final, boom in oil prices will be significant, and it will accelerate the transition to a more sustainable global economy,” said BCG’s Jamie Webster, a senior director. “A rise in prices, coupled with post-pandemic stimulus targeted at rebuilding in a more environmentally friendly way, will see many countries step up investment in renewable energy and electric-vehicle charging networks.”
With additional reporting by Kevin Dobbs
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